The Gold Correction and The AMP Forecast by jackbassteam

Homestake Gold Mine (Photo credit: Travis S.)

BIG CORRECTION BUT WE STILL BELIEVE IN BULLION; PEAK SCENARIO TEMPERED TO $1,750/$32.50

 We are lowering our peak gold/silver scenario to $1,750/$32.50 from $1,850/$35 for equity target price setting. For earnings purposes, we are also revising our gold/silver price forecast to $1,639/$29.52 (from $1,775/$33.75) in 2013 and to $1,725/$31.75 (from $1,825/$34.00) in 2014, with no change to long term $1,600/$29.00 in 2017 and beyond
 Gold's harsh correction year-to-date has been explained by improving signals in the US economy which has increased the perceptions of a shortened life to the Fed's QE3 program. We have seen liquidation in the EX non-commercial gold positions and ETF holdings and related redemptions in precious metals funds that accelerated to the downside in February. But we continue to believe that macro-economic conditions support sustainably high gold prices, including record global US$ liquidity,
low real interest rates, and Eurozone sovereign debt concerns. Since our Q4/12 preview in January, US$ global liquidity has
continued to rise and in our view now supports a best-fit gold price of $1,750/oz (versus $1,720 in mid-January).

The Bulls Remain Bulls
 We remain bullish on the sector based on the following: 1) the gold price and equity valuation multiples appear oversold to the
point where we observe contrarian insider buying; 2) 2013 guidance generally appears conservative; and 3) the sector will likely
be coming out of a peak in growth capital spending towards the end of this year which paves the way to increasing net free cash
flows and potentially higher dividends.
 Ratings revisions include: Hecla Mining (BUY from Hold) and Aura Mineral (HOLD from Spec Buy). Our CG Canadian 2013 picks include Yamana Gold, Argonaut Gold, B2Gold, Primero Mining, Endeavour Mining, and Santacruz Silver Mining.
 Q1/13 (and likely Q2/13 given where gold started the period) will be a weak quarter from an earnings point of view given the
sequential 5%/7.6% decline in gold/silver prices. On average, we anticipate a sequential decline in earnings of approximately 30%
amongst the Senior/Intermediate producer group. Our estimates are notably below consensus (partly due to the timing of our
update) for ABX, AEM, IAG, AUY, AGI, ANV, AR, BTO, PAAS and SLW, and we expect sequential declines for the majority of
companies under coverage. Our estimates are notably above consensus for GG (Goldcorp) and GOLD.