Gold equities, bullion provide safe passage through uncharted waters
According to Dundee Securities, gold equities and bullion have provided a safe haven over the last few months and are expected to continue doing so into 2012
Posted: Monday , 28 Nov 2011
Gold and gold equities have, since July, performed remarkably well as a safe haven and, according to Dundee Capital Markets, they are likely to continue playing that role into 2012.
While admitting that historical performance isn't always the best indicator of future performance, the commodities team at Dundee Securities writes, "Over the past 10 years, the months of November and December have historically been good to gold and gold equities. Looking at December in particular, both bullion and the S&P/TSX Gold Index have averaged positive monthly returns of +2.5% and +3.5%, respectively.
And, it adds, "As we reach the tail-end of November, we remain encouraged for the final leg of the year and continue to believe both bullion and gold equities are positioned to remain in positive territory."
Historical, cyclical performance is not, however, the only justification for the prediction. with the current macro economic situation in both Europe and the US expected to remain challenging with "ballooning national debts tied with cooling economic activity" in the eurozone and "the debt load of the United States (~$15 trillion) quietly looms in the shadows, and unresolved via political deadlock... global equity markets remain fraught with risk as we continue to wade through uncharted waters," the group says, that the yellow metal is expected to continue serving as a safe haven.
"From a protection of capital standpoint, the gold equities (known for volatility) as a sector have demonstrated, dare we say it, defensive characteristics in tough times. Equally intriguing, bullion outperformed all the indices demonstrating a tidy +5% return over a similar period [From July28th to date]. As a consequence, we continue to recommend investors overweight gold and/or gold equities," the group writes.
The group has raised its average bullion forecast for the full year 2011 marginally from US$1,526/oz to US$1,587/oz but has increased its 2012 prediction significantly to US$1,930/oz from US$1,750/oz.
"Perhaps our most significant adjustment comes from our 2013 price assumption which has risen to $2,200/oz from $1,625/oz previously to reflect our expectations of ongoing economic uncertainty. With respect to our long-term gold price assumptions, as of November 24, gold has averaged US$1,229/oz over the trailing-36 month period. Accordingly, we've adopted US$1,200/oz (previously US$1,125/oz) as our long term forecast beginning 2017."
In terms of equities, the group prefers to remain cautious given the uncertain economic times advising clients to remain in "reputable" names that boast defensive balance sheets.
"While we recognize the sheer size of the senior and intermediate producers make them less likely to generate the potential returns of their smaller peers, we expect investors will remain well-protected on the downside."