A potentially less hawkish stance from the Fed on interest rates and a rising gold price has got Canaccord Genuity (TSX:CF, LSE:CF) looking again at the Australia-listed junior precious metals sector and the broker has provided its top picks.
On Thursday, spot gold climbed 2.3% to stand at US$1,745.66 an ounce, which was a two-month high, having earlier crossed the key US$1,750 threshold.
The trigger for the price rise was the cooling of US inflation last month, with the consumer price index (CPI) rising 0.4%, compared to an advance of 0.6% as forecast by economists.
That, coupled, with data released last week, which showed that US unemployment had ticked up more than expected has softened the belief that the US central bank will plough on so whole-heartedly with its tightening stance (raising rates).
It is worth noting that following the US inflation numbers, the dollar headed the other way and dropped over 1% to a near two-month low. This makes gold less expensive for other currency holders.
More constructive
Analysts at Canaccord said for them to have become more "constructive" on gold the broker would need to see a "pivot" in the Fed's hawkish monetary policy.
"Data released last Friday however showed the US unemployment rate ticked up more than expected leading to speculation the labour market may be easing and the Fed may begin to taper the pace of rate hikes. Last night’s softer than-expected inflation print has compounded this stance," said the analysts, who added that US$ gold was up around 8.5% and the ASX Gold Index (XGD) was up 20% over the last week.
The TSX Global Gold index has gained 11.09% over the last five days.
"We note that looking at the major US rate hike cycles over the past 50 years, the gold price has risen six out of the last eight cycles.
"While no certainty can be offered, we maintain a constructive outlook on gold into 2023 on the basis that the velocity of interest rate hikes will likely normalise, and gold headwinds will abate," they added.
Grade or scale
In terms of its stock picks, the broker reckons companies with 'grade' or 'scale' are the best option and hones in on those mining firms with the potential to become the next "wave of development projects".
Auteco Minerals (Speculative Buy: target price; A$0.15), for example, has been quietly ticking off milestones at its high grade 2.2 million ounce (Moz) at 7.8g/t at Pickle Crow project in Ontario, Canada, said analysts, who expect to see a resource update in the March quarter next year of over 2.5 Moz.
Canaccord also picks Genesis Minerals (ASX:GMD) as a 'Buy', targeting A$2.20 a share, and OreCorp with a 'Speculative Buy' and target price of A$0.90.
Titan Minerals Ltd (ASX:TTM) has a non-JORC resource of 2.1 million ounces (Moz) at a grade of 4.5 g/t gold at its Dynasty project in Ecuador. The broker rates shares 'Speculative Buy' and targets $0.20 each.
Juniors operating in Canada include First Mining Gold Corp. (TSX:FF, OTCQX:FFMGF), which is advancing its Springpole asset in northwestern Ontario and the Duparquet project in Quebec - two of the largest gold projects in the country.
Meanwhile, BTU Metals Corp. (TSX-V:BTU, OTC:BTUMF) is exploring at the Dixie Halo project in Red Lake, Ontario, which spans almost 20,000 hectares of highly prospective ground, 200 sq km of which is contiguous to Great Bear Resources (TSX-V:GBR).
BMEX Gold Inc (TSX-V:BMEX) is focused on two wholly-owned projects in the Abitibi greenstone belt of Quebec - King Tut and Dunlop Bay.
Elsewhere, Klondike Gold Corp. (TSX-V:KG) boasts its giant District project of the same name in the Yukon. Yesterday, the company reported a first resource of 469,000 ounces of indicated gold and 112,000 ounces of inferred.
Contact the author at giles@proactiveinvestors.com