The level had not been reached since the last gold bull market and was significant enough that it might "force" generalist investors to take a fresh look at smaller-cap precious metals equities, the bank's institutional equity research arm said in a note this week.
This market segment has typically had more of a niche audience over the past decade given its higher perceived risk attributes. But gold has been gaining momentum over the past three months, adding about 17% since early June to US$1,544/oz on Tuesday, underpinned by global trade tensions, declining real interest rates and concerns of a global economic slowdown becoming more pronounced.
The bank had set a bullish tone for gold equities early this year, noting time and again in recent months the weighting of precious metals equities within the S&P/TSX had been steadily inching higher. Historically, a weighting of 8% or more in the S&P/TSX had forced domestic generalist funds to increase their sector weighting.
"The impact on the small-cap index has been more pronounced given the sell-off in energy equities versus outperformance of precious metals equities over the past several months. In fact, the weightings of energy and materials were almost equal at 26% and 24%, respectively, a year ago, and are now skewed sharply in favour of materials at a weighting of 28%, versus energy at 13%," said CIBC analyst Cosmos Chiu.
However, the increased weightings do not necessarily mean there are no more appealing stocks to pick with plenty of upside.
"We find it hard to believe that generalist investors have been as aggressive in adjusting their weightings and believe that there are still attractive names to buy in the sector despite the recent run-up.
"We continue to see no signs of rate hikes on the horizon over the next several years, and historically have seen gold continue on an upward trajectory beyond the last rate cut. [It is] not too late to increase weightings to the sector and stock picking remains key to de-risking exposure to this sector," Chiu said.
Given the strength and positive outlook for the underlying commodities, and improving balance sheets, project economics and free cash flow profiles for several names within CIBC's universe, the bank remains bullish on SSR Mining, Detour Gold, Dundee Precious Metals, B2Gold, Osisko Mining, Equinox Gold and Osisko Gold Royalties to increase weightings to the sector within ‘small-cap land'.
