Credit Suisse: Positive on gold
Major drivers for gold
One of the major drivers for CS’s view is expectations of a peak US dollar (UUP) in 2019, which should then reverse course. This expectation is on the back of a more dovish Fed due to slowing growth and twin deficits. Other factors the bank listed include declining bond yields (IEF)(AGG), more volatility in the stock markets, inflows in gold-backed ETFs, and central bank buying.
As we highlighted in Gold ETF Holdings Are on the Rise, gold ETFs rose for the second consecutive month in November to 21.2 tons to a total of 2,365 tons. The global gold-backed ETF (GLD) flows are now positive in US dollar (USDU) terms for the year. The renewed buying interest from investors was on account of increased market volatility and the equity market sell-off. While gold prices have languished for most of 2018, October saw a resurrection in the metal’s safe-haven appeal. In October and November, gold prices rose 2.5% while the S&P 500 (SPY) was down 5.0% and the NASDAQ Composite (QQQ) fell 8.9%.
Gold equities to follow gold
Credit Suisse also expects gold equities (GDX)(GDXJ) to follow gold higher. It believes that after the sell-off in 2018, gold equities present an “attractive entry point, particularly for equities with favorable valuations.” It particularly likes companies with strong production pipelines, assets in attractive mining jurisdictions, and lower cost profiles. CS’s top picks are IAMGOLD (IAG) and Agnico Eagle Mines (AEM).