CIBC sees the current market as an "excellent opportunity to buy the dip across the sector". The current environment, with near-zero interest rates, market uncertainty and ongoing liquidity injections, provides a bullish setting for gold and silver, it believes.
"We attribute the recent sell-off in the equities and the ensuing sell-off in the commodity to deleveraging and investors taking profits to meet margin calls in other parts of their portfolios," the Canadian bank's team of equity researchers said Wednesday.
A similar phenomenon occurred during the fall of 2008, when gold sold off to about US$712/oz from $890/oz in a span of seven weeks, before finding a bottom in late-October 2008.
"From there, gold and gold equities entered a parabolic shift over the next two years, delivering outperformance through the Global Financial Crisis."
The bank said it was seeing signs of stabilisation in the sector, and a resumption of the correlation between equities and the gold price, which had seen recent divergence.
"We expect some impact to operations for some companies, but we believe most equities are sufficiently adjusted for that risk."
CIBC's analysts said the potential impact on operations and any potential downside risk to the companies in its coverage universe showed most companies had "sufficiently strong balance sheets" to weather temporary curtailments of production.
In the year to date, the gold price averaged $1,578/oz, with spot gold at about $1,549/oz, up 6% and 4%, respectively, over the December-quarter average of $1,483/oz, a price level CIBC sees "sufficient to fund dividend increases, share buybacks and debt repayments".
"We believe this represents a good opportunity to enter the space with precious metals companies trading at historically attractive multiples of around 0.90x P/NAV. We believe large, diversified, high-quality producers with strong balance sheets will continue to outperform," the bank said.
World Gold Council CEO David Tait said Wednesday the unprecedented economic crisis had caused widespread, rapid-fire asset sales and a "dash for cash".
"Notwithstanding recent price volatility, I believe gold is as relevant as ever and will play an increasingly important role in investors' portfolios in the years to come. The long-term implications of ballooning budget deficits, negative real rates, and debasement of currencies should support gold in future," he said Wednesday.
Moody's Investors Service now expects G-20 real GDP to contract by 0.5% in 2020, followed by a pickup to 3.2% growth in 2021. "In November last year, before the emergence of the coronavirus, we were expecting G-20 economies to grow by 2.6% in 2020," it said.
