Gold prices will stay sky-high

Peter Koven January 10, 2011 – 10:15 am

You can add Stonecap Securities to the ever-growing list of brokerages that believe elevated gold prices will be with us for a long time.

In a Monday research note, Stonecap analysts Ovais Habib and Christos Doulis hiked their 2011 price forecast to US$1,450 an ounce (from US$1,350), and are now using a long-term price of US$1,100. They also raised their long-term silver price by 25% to US$20 an ounce. For 2011, it’s US$30.

“We believe precious metal prices will remain above 10-year averages for the foreseeable future,” they wrote.

For them, it is simply a matter of supply and demand. On the supply side, they pointed out that production has been flat to declining for five years, and that projects are being affected by a number of issues (including rising costs, environmental compliance issues and tax issues) that are slowing development.

“There are no significant sources of new supply coming onto the market in the precious metal sectors in the next two years,” the analysts wrote.

When it comes to demand, they pointed out that physical gold demand rose 12% year-over-year, with especially strong demand in India and China. The World Gold Council reported that jeweler demand rose 8% year-over-year in the third quarter, suggesting that buyers are getting accustomed to higher prices, they wrote. And China imported about 209 tonnes of gold during the first 10 months of 2010, nearly 500% more than it did last year.

Loonie benefiting from short-term U.S. optimism: Citi

Aaron Lynett/National Pos

STRONG LOONIE :

Eric Lam January 10, 2011 – 1:32 pm

The strong loonie surprised exactly now one when it outperformed the U.S. dollar and the euro last week. What was surprising, however, was that it was the only major currency to make gains, including other commodity currencies such as the Aussie dollar.

Todd Elmer, currency strategist with CitiFX, noted the Canadian dollar climbed 0.65% against the U.S. dollar last week, while the euro also declined more than 3%. However, the Australian and New Zealand (ian?) currencies also slumped.

“This outperformance vis a vis the AUD and NZD looks slightly out of place given that risk appetite was relatively buoyant last week,” he said in a note. “Equity prices traded higher and this has often been associated with CAD underperformance in recent months. The apparent breakdown in this relationship signals that the CAD may have been responding to idiosyncratic factors.”

In Mr. Elmer’s estimation, the likely culprit is a recent wave of optimism in U.S. economic activity, coupled with little new data on the Canadian economy.

Given Canada’s tight relationship with the United States (we depend on them for everything from trade to border security), investors may just be expecting some “pass-through” to Canada if the U.S. economy improves.

“It looks unlikely that the apparent surge in U.S. economic activity will be sustained in the quarters ahead, but one-off factors could continue to flatter the data for the time being,” he said.

There is likely additional upside to the loonie in the short term, the note said.

Nexen top oil pick at JPMorgan

Handout/Nexen

An Ensign roughneck working for Nexen, positions a section of pipe to the drilling hole while tripping pipe at one of the Nexen's rigs at the Dilly Creek site north east of Fort Nelson, B.C. Canad

Carrie Tait January 10, 2011 – 3:31 pm

Katherine Lucas Minyard is taking, in her words, a more conservative view on investing in North American oil companies. Following the share price strength of recent weeks, the JPMorgan analyst told clients that she is left with average potential upside of only 4% to her year-end 2011 [estimated] price targets.

Canadian companies get a bit of a boost, with room to climb about 9% on average, Ms. Minyard said in a note. Conservative, yes, but she leaves room for excitement.

The analyst tapped Nexen Inc. as her top pick in 2011, and expects it to hit $28 per share by the end of the year. If she's right, that means Nexen will climb 28%.

Nexen, she said, could be due to announce a large-scalejoint venture in its Horn River shale assets a route a number of Canadian companies have taken as they look for partners with deep pockets who can help develop their resources.

Cenovus Energy Inc. also got the nod. Ms. Minyard believes it has room to climb 18% to $38 per share in 2011, and could be on the verge of announcing a joint venture project, too.

Because [Cenovus] maintains a nearly-exclusive focus on Canadian in-situ heavy oil production, we believe [Cenovus] is favorably positioned to realize the benefits of technology and process improvement in lowering and development costs, which are already low in comparison to the peers, she wrote.

Talisman Energy Inc., which unveils its 2011 budget and outlook Tuesday, also made it into Ms. Minyard’s good books, with a target price of $23. Marathon Oil Corp. and Hess Corp. are also on her good side.

Investors, she said, should lock in profits and pare exposure a nice way of saying sell, maybe hold, but don’t buy to Murphy Oil Corp., Occidental Petroleum and Husky Energy Inc.

She has three companies deemed neutrals to watch. ConocoPhillips, Canadian Natural Resources Ltd. and Suncor Energy Inc.

Carrie Tait