The price of gold has been struggling to make further appearances in the record books since peaking at all-time highs just above $1,900 (U.S.) earlier this month.
Bullion and the equities in the precious metals sector won't have seasonality trends working in their favour as October approaches. It's typically a weak month.
But don't count on that holding true this year, argues Canaccord Genuity analyst Martin Roberge. He believes this could be just the calm before the sector sees a frenzy of buying interest.
"We recommend investors scale into any price weakness in gold equities as this may be the last pause before a phase of accelerated relative price appreciation or mania begins," Mr. Roberge said in a research note today.
He listed several reasons for his optimism, including:
--Canaccord's "gold reflection gauge" - a timing indicator that blends key variables influencing gold and gold stock prices - remains positive. With its reading above zero, it suggests the odds are about two-thirds that bullion will rise and gold shares will outperform the market.
--Book-based valuations of senior gold companies are cheap. At prior cyclical peaks, world gold equities were overbought and traded at price-to-book ratios between two times and four times. Right now, they are sitting at only 1.7 times.
--Relative to the world equity market, the gold sector has broken out to 52-week highs, supported by forward earnings and return on equity trends.
--Payout ratios should increase markedly, as dividends of world gold companies currently represent only 20 per cent of their profits.
He listed several risk factors to his bullish view, including the possibility of cost inflation biting into profits and the chance that a positive resolution is found to the European debt and banking crisis - which would lower the perceived safe-haven attraction to gold.
Canaccord isn't the only one issuing a bullish outlook ahead of the Denver Gold Forum next week, a huge gathering of industry executives and analysts.
Long-time gold bull Sprott Asset Management released a report suggesting gold equities are about to shine, pointing to a new divergence from the bullion price.
For instance, on Aug. 29, spot gold dropped 2.16 per cent while the stocks fell by only 0.81 per cent. On Sept. 7, gold fell by 3.09 per cent while gold stocks rose by 0.33 per cent. "These small differences indicate a new trend forming. While gold's daily volatility is expected to continue, we may be entering a new phase where the stocks react less harshly on gold down days, and outperform gold on days of strength," Eric Sprott and David Baker wrote in the report.
Many Sprott funds have already moved out of gold bullion and into gold equities.
"Equity investors shouldn't let $1,800 gold dissuade them from participating in precious metals equities. The world is still dramatically underexposed to gold, and we firmly believe it should represent a higher percentage of investors' total portfolios today," they wrote.
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Analysts are quickly hiking their price targets on Dollarama Inc. after the discount retailer reported a surprisingly strong quarter.
RBC Dominion Securities Inc. analyst Irene Nattel raised her target by $2 to $40 and maintained an outperform rating. "With strong sales and gross margin performance, combined with ongoing balance sheet delevering, DOL should generate above-average earnings per share growth, even in a weaker macro environment," Ms. Nattel said.
Versant Parners' Neil Linsdell jacked up his price target by $5 to $41. "While at the high end of the comparable valuation range, Dollarama deserves a premium value based on its industry-leading growth, profitability and dominant market position," he said.
CIBC World Markets Inc. analyst Perry Caicco, meanwhile, increased his price target by $2 to $40.
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Nucor Corp. has announced lower-than-expected third-quarter guidance amid weakness in steel prices and metal margins. It now expects earnings per share of 45 to 55 cents, down from 94 cents in the second quarter, and missing the consensus forecast of 64 cents.
CIBC World Markets Inc. analyst Michael Willemse noted that management indicated it is starting to see improvements in end-market demand and North American steel prices appear to have bottomed from the recent downward trend. But Mr. Willemse isn't all that convinced a turnaround is at hand, and is still looking for continued weakness in steel prices.
He cut his price target by $4 to $40, and maintained a "sector underperformer" rating.
Darcy Keith