The firm also outlined its view on a variety of subjects in the report, including its bullish stance on the gold price. Last year marked the ninth consecutive time that gold exited the year at a higher price than it had entered, climbing 38%. The gold price has also been moving higher since 2001, but that performance has largely been coincident with a declining U.S. dollar.

However, the strong correlation between the two assets evident during the past decade has weakened significantly of late as investment drivers like safe haven buying have emerged. Dundee believes the falling U.S. dollar between 2001 and 2008 was not the reason gold climbed above US$1,000 per ounce. Instead, it pointed to stronger emerging markets and economic growth pushing up both jewellery and investment demand.

Going forward, the firm’s analysts believe gold will be primarily driven higher by investors searching for meaningful US$ returns without taking currency and credit risk.

Underlying gold equities, as measured by the S&P/TSX Global Gold Index, were able to follw the yellow metal’s lead for the most part. However, the overall performance of gold stocks over the nine-year period has lagged bullion’s gains.

Poor corporate performance from several of the heavily weighted large and mid-cap producers take much of the blame. In 2009, slower-than-expected start ups at several new or recently-expanded operations in the large cap group drove share prices lower. Meanwhile, exploration and development stocks have managed to outperform both gold and the index in seven of the past nine years, Dundee noted.

The credit crisis may have dried up liquidity and raised concerns that small companies wouldn’t survive or be able to finance their projects, but overall gains for this group have far exceeded their larger couterparts over the longer term.

“While the larger producers are often the first to react to quickly rising gold prices (as happened in late 2007 and early 2008), the euphoria eventually trickles down to the smaller caps, sometimes rapidly should the price rise correspond to a new discovery or the announcement of an acquisition,” Dundee said.

Reversing a six-year upward trend, estimated global exploration spending declined in 2009 to levels last seen in the middle part of the decade. Expenditures were down across all regions, with Canada leading the way in terms of percentage, the firm noted.

Improved metal prices and an easing of the credit crunch in 2009 allowed exploration companies to return to the equity markets for capital. This suggests more aggressive exploration budgets were proposed for 2010. Exploration spending probably won’t reach the record levels witnessed in 2008. However, Dundee anticipates increases this year. Couple that will the resulting newsflow, and share prices appear to have more room to rise in 2010. That means more ten baggers.

Jonathan Ratner