Gold prices would be doing better in current environment if it wasn't for cryptocurrencies - Credit Suisse
(Kitco News) -The gold market continues to trade near a five-month highand despite its recent breakout rally, one international bank said that currentprices are still disappointing.
In a report published Thursday, analysts at Credit Suissesaid they were lowering their 2022 price forecast for the precious metal. TheSwiss bank sees gold prices averaging next year around $1,850 an ounce, down2.6% from their previous forecast of $1,900 an ounce.
Analysts Fahad Tariq and Jessica Xu, authors of the latestreport, said that there is a disconnect between gold prices and bond yields.
“The 10Y U.S. TIPS yield (i.e. real rate) remains deeplynegative at - 1.10% at the time of this writing,” the analysts said. “Based onour two-factor model - TIPS yield and USD index - the implied gold price is~$1,910/oz vs. ~$1,863/oz spot.”
Real bond yields have dropped sharply in the last two weeksas the Federal Reserve has signaled that it is not ready to raise interestrates anytime soon and as inflation pressures have picked up. The October U.S.Consumer Price rose 6.2% for the year, its biggest increase in more than threedecades.
Although bond yields have supported the gold prices, Xu andTariq noted that the precious metal faces growing competition from Bitcoin andother cryptocurrencies.
“There have been instances of significant positive pricemovement for Bitcoin, and on those days, gold typically trades lower or lags,though the overall correlation is positive,” the analysts said. “Given theprevailing macro factors (i.e., low rates, high inflation), we would haveexpected gold to be trading higher were it not for cryptocurrencies serving asimilar inflation-hedge function for some investors.”
While gold prices have maintained critical support levelsfollowing its recent breakout, Bitcoin has seen its bullish momentum wain inrecent days. Monday, the leading digital currency dropped 5% after reaching anew record high the previous week.
Further selling pressure in Bitcoin has pushed the pricebelow $60,000 per token, a critical support level for some market watchers.
While Credit Suisse is lowering its price forecast for goldnext year, the firm remains extremely bullish on the mining sector.
The analysts said that gold miner valuations are tradingbelow levels seen in the last bull market, even as the sector has seen cashflow and balance sheets strengthen.
The company said that its top picks are: Agnico Eagle (NYSE:AEM, TSX: AEM), Newmont (NYSE: NEM), and Endeavour Mining (TSX: EDV). CreditSuisse also looks for Kinross (NYSE: KGC, TSX: K), Barrick (NYSE: GOLD), TripleFlag (TSX: TFPM), and Yamana (NYSE: AUY) to outperform.
Looking deeper into the mining sector, the analysts saidthat mergers and acquisitions will remain an important theme in 2022.
“We think the trend of senior gold producersacquiring single asset companies in Canada will persist, as well asconsolidation among intermediate gold producers,” the analysts said. “Theimpetus for intermediate gold producers to combine is scale, relevance, costsynergies (particularly important in the current inflationary environment), andreserve replacement. At this time, we do not think the significant costsassociated with meeting emissions targets will be the main factor drivingindustry consolidation.”
By Neils ChristensenFor Kitco News
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