David Berman/ globeandmail.com Michael Curran, an analyst at RBC Dominion Securities Inc., is bullish on gold and gold equities, and you can see why. Whereas gold trades at about $1240 (U.S.) an ounce right now, gold equities are discounting considerably lower prices for the commodity, leaving plenty of upside potential.
According to his figures, the average discounted gold price among North American Tier 1 producers is $915 an ounce. In other words, the stock prices assume that the long-term price of gold will tumble about 26 per cent from the current level. Yamana Gold Inc. (YRI-T10.79-0.03-0.28%) has the lowest discounted gold price, at $780 an ounce. Newmont Mining Corp. (NEM-N59.440.701.19%) has the highest discounted gold price, at $1017 an ounce. Barrick Gold Corp. (ABX-T48.820.861.79%) is near the average, at $904 an ounce.
If the discounted gold price were to narrow the gap with the actual, current price – say, to $1,200 an ounce – then share prices would rise considerably. In fact, the average pop would be 55 per cent. Even with a discounted price of just $1,000 an ounce, the average share price would rise 17 per cent. (more)
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