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

The golden days are back.

Gold equities have been receiving an incredible run to date in 2016 amid the rally in prices. Analysts at BMO Capital Markets think it is now time to take some profits from the table, because 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 possibilities to buy within the next 3 months,” they said in a note.

Back when gold prices were slumping, the BMO analysts urged investors to pay attention to large producers which have high-quality assets, strong balance sheets and good management teams. These are considered probably the most “defensive” names within the sector. Since prices are stronger, they believe investors should consider some higher-risk stocks that provide better upside.

“These less defensive names tend to be smaller producers that often have superior growth profiles to the larger producers, which lead these companies to deliver better leverage to raised metals prices,” they said.

Their top chioces among 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 percent (to US$1,200). Additionally, they predicted gold will bottom at US$1,150 an ounce, up using their prior forecast of US$1,000.

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