Fed tests gold upleg
Gold’s outlook and fundamentals remain really bullish.
Gold has been treading water above the $1,340 an ounce level recently, coming off two-year highs hit earlier in August. Year to date the metal has gained almost 26% or more than $280 an ounce.
It’s been gold best first half run since 1980 when the price hit an all-time high on an inflation adjust basis. The rally has surprised many analysts and at the start of the year the vast majority of investment and institutional analysts predicted gold would dip below $1,000 during the course of the year and average below last year’s uninspiring $1,160 an ounce.
Many gold bears have now changed course and some of the big bullion banks including UBS now sees $1,400 before the end of the year, as does French bank Natixis (which predicted last year’s gold price down to the dollar).
“The next gold bull market is under way, and any weakness is viewed as a buying opportunity”
Credit Suisse and BofA Merrill Lynch have it even higher at $1,500 going into 2017. Dutch bank ABN Amro, another erstwhile ultra-bearish house, revised its forecast to $1,425, adding that a Trump presidency could really see things explode.
Kitco reports Canadian investment bank RBC Capital Markets has now joined the gold bull chorus sharply revising their earlier forecasts upwards. The bank now sees gold rising to $1,500 in 2017 and 2018 compared to its previous forecast of $1,300.
RBC references the usual suspects for its more bullish outlook: “Elevated geopolitical risk in the U.K./euro zone, increasing systemic risk with increasing negative yields for government bonds and the Fed likely to pursue a more dovish monetary policy”. The Toronto-based investment bank has even better news for investors in gold mining stocks:
“We reiterate our view that investors should look to gold equities for exposure to gold, especially given the increasing free cash flow generated in the current gold price environment.
“We recommend that investors focus on operating companies with attractive margins, solid balance sheets, organic growth opportunities and a consistent operating strategy,” the analysts said. “Our technical outlook suggests that the next gold bull market is under way, and any weakness is viewed as a buying opportunity.”
2 Comments
Jb
As an ex RBC mining analyst myself I appreciate the effort and quality of their research produced. However, a hard lesson I learned from one of the world’s leading gold fund managers is that if you really think gold is going up, you get your best returns from the most marginal situations. This is counter intuitive to most analysts who come from a background of corporate modelling where poor IRR’s and DCF’s spell disaster! Poor balance sheets and weak margins are not for the feint hearted, but for anyone who is a true gold bull they offer the way to real riches! Try running the IRR and DCF at USD300/oz higher and see what companies look like. See which companies have the largest move in target prices under the higher gold forecast? You only stay with high margin, secure plays if you do not 100pct believe your forecast, or your world’s dominated by Retail who might chase your backside if you push them down too risky an avenue! Good hunting!
The armchairanalyst
MX Gold Mining should come out of Left field. Literally from Ugly Duckling to Beautiful Swan.