Take profits in gold equities, but be ready to buy more: BMO

Gold equities have been receiving a fantastic run so far in 2016 amid the rally in prices. Analysts at BMO Capital Markets think the time has come to take a few profits from the table, as the second quarter is a seasonally weak period for gold.

“We expect precious metals equities to outperform within the next 12 months, but anticipate a near-term correction perhaps providing better opportunities to buy over the next three months,” i was told that inside a note.

Back when gold prices were slumping, the BMO analysts urged investors to focus on large producers which have high-quality assets, strong balance sheets and good management teams. They are considered the most “defensive” names within the sector. Now that costs are much stronger, they believe investors should think about some higher-risk stocks that provide better upside.

“These less defensive names tend to be smaller producers that often have superior growth profiles towards the larger producers, which lead these companies to provide better leverage to higher metals prices,” i was told that.

Their top chioces one of the mid-tier producers are Alamos Gold Inc. and Endeavour Mining Corp.

The analysts raised their gold price assumptions due to ongoing economic uncertainty. They hiked their target for 2016 by 12 per cent (to US$1,175 an ounce), and raised their 2017 target by nine per cent (to US$1,200). Additionally, they predicted gold will bottom at US$1,150 an ounce, up from their prior forecast of US$1,000.