Etikett: Goldminers

Geopolitical Risk Keeps Investors on Edge

Geopolitical Risk Keeps Investors on EdgeGeopolitical Risk Keeps Investors on Edge

ETFS Multi-Asset Weekly Geopolitical Risk Keeps Investors on Edge

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Can oil’s rebound be sustained without geopolitical risk?

Goldminers outperform as investors await US earnings.

USD pares losses ahead of jobs data.

Geopolitical risk has again hit the headlines, after Saudi Arabia launched air strikes on Yemen, prompting investors to seek defensive portfolio hedges. Oil and gold have staged solid rallies, while rising volatility has left investors concerned over the sustainability of equity market gains. Investors will have one eye on the US earnings reports scheduled to begin this week, with the USD strength potentially posing a threat to corporate bottom lines. The other will be monitoring global developments including whether or not Greece can submit an agreeable set of reforms for creditors, while balancing its own citizens’ expectations.

Commodities

Can oil’s rebound be sustained without geopolitical risk? The rebel fighting in Yemen that drove a Saudi Arabian led Coalition to launch military action boosted WTI crude prices over 10% last week to their highest level in three weeks. However, if the action is able to quell the violent rebel uprising, we expect some near-term weakness as the market refocuses on abundant supply. We expect a bottoming process has begun in oil and medium term strength is likely. Elsewhere in the commodity complex, rising geopolitical risk also boosted precious metals prices, with silver being the largest beneficiary of the flight to defensive assets by investors. The rising risk environment will add to the current low/negative rate environment in enhancing the appeal of precious metals. The release of the WASDE crop conditions report is a key highlight for the agricultural sector this week. The report will give insight into the planting intentions of US farmers for grain crops and the health of the winter wheat crop, allowing investors to gauge the supply side strength compared to the record 2014 crop.

Equities

Goldminers outperform as investors await US earnings. While most major equity indexes struggled to make headway against rising volatility on the back of geopolitical concerns, goldmining companies remain an investor favourite. The DAXGlobal Gold Miners index continued to stage a rally, in line the rally of gold and has risen by nearly 12% over the past three months. Meanwhile investors continue to push Chinese equity valuations higher, seemingly more comfortable with a stabilising growth outlook, despite a weakening in the manufacturing indicators last week. The MSCI China A Index ended the week up nearly 3% at an all-time high. The focus for investors this week will be the beginning of the corporate earnings season in the US. With equity valuations retreating from recent record highs, investors will be looking for evidence of a softening in results and the impact of the stronger USD. If these conditions are realised we could see a pullback in equity performance.

Currencies

USD pares losses ahead of jobs data. Fed chair Yellen’s speech last week highlighted the gradual nature of the tightening cycle when it begins later in 2015. Nonetheless, the USD has taken back some of its recent losses despite weaker data and investors are looking ahead to jobs numbers which have been the one area of strength for the US. Certainly inflation is non-existent, and has reached zero not just in the US, but also for the first time in the UK. While revised Q4 GDP is expected to moderate, European investors will be more interested in the Eurozone CPI and unemployment readings, which are likely to reveal that the ECB still has much to do to help boost inflationary pressures via strengthening demand.

For more information contact:

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E  info@etfsecurities.com

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Gold Miners: Outperformance to Continue

Gold Miners: Outperformance to Continue

Gold Miners: Outperformance to Continue . With gold mining stocks trading at a 58% discount to 2011 levels, gold miners’ shares remain highly undervalued relative to fundamentals in our view. Although reserve depletion is an issue that still needs to be addressed for sustainable long-term growth of the sector, cost management has substantially improved miners’ profitability. With global growth finally starting to gain momentum and seasonality of gold demand historically buoying gold miners’ shares in the third quarter, we believe now may be a good time to raise exposure to gold miners. We maintain our positive view on gold miners and target broad miner valuations to move back to around 2x book value over the next few months, providing potential 30% upside for the DAXglobal Gold Miners Index.

  • Although gold miners have rallied 26% since the beginning of the year1, on a price-to-book value basis gold miners’ shares are still trading 33% below their 5-year average.
  • Gold miners’ underlying fundamentals are finally improving, with costs falling 18% in Q1 2014 compared to 2013 levels.
  • Historically, the third quarter (Q3) has been a strong period of performance for gold miners given the seasonality of gold demand.

An additional supporting factor is the rebound of key leading indicators of global growth, which have historically correlated strongly with broad gold miner share performance, particularly relative to the gold price.

MORE UPSIDE FOR GOLD MINERS’ SHARES

After rising by over 25% since the beginning of the year, gold miners’ shares have recently returned to trade above their book value, according to our calculations (Figure 1). However, their price to book value remains 33% below their 5-year average, potentially setting a medium-term base for the share price. In our opinion, no further write-downs are to be expected in the near future, following a 10% decrease in total reserves and resources in 2013 from a year earlier as miners reassessed their gold price assumptions. With a production-weighted average gold price assumption of US$1,3262, miners’ assets appear to be fairly valued. We believe gold miners’ shares are still undervalued relative to fundamentals and anticipate they will get back to trade around 2x the book value of assets. All things being equal, this means that prices have the potential to rise by 30% in the next few months, to the levels last seen in March 2013

MARKET TIMING APPEARS FAVOURABLE

In terms of timing, we think Q3 may be a good time for investors to look at gold miners due to the seasonality of their returns. On average over the past twelve years, the third quarter has seen gold miners’ shares returning substantially higher gains than in the other quarters (Figure 2). This is particularly true when the OECD Lead Indicator is in expansionary territory. This has to do with the seasonality in gold demand, linked to the Indian wedding and festival season which starts at the end of September. Relative performance of gold mining stocks versus the gold price has varied widely over time, depending on the market environment, risk appetite and other fundamental factors such as political and regulatory events, company-specific developments and macro issues. However, historically, gold miners have tended to outperform gold when the global business activity, as measured by the OECD World Lead Indicator, has been high and rising. Conversely, gold has tended to outperform gold miners when growth has been slowing and the global economy has been in a downturn, as during the most recent financial crisis (Figure 3). With global growth finally starting to gain momentum, we expect the correlation between miners’ shares and gold to reduce and gold miners to start to outperform gold.

IMPROVING FUNDAMENTALS BUT LONG-TERM ISSUES REMAIN

While costs remain a key concern, miners have made good progress in containing expenses and closing down loss-making mines. All-in costs in Q1 2014 were 18% lower than in 2013. However, this was achieved mainly through a reduction in expansionary capital expenditure which is now less than half, on average, than the amount allocated back in 2012 (Figure 4). Expansionary capex and expenses include all costs related to projects that would significantly increase the net present value of existing mines and that are not related to current production, including reserve substitution. While in the short term cost containment is likely to have a positive impact on miners’ bottom line, in the long run this might be detrimental for miners’ production, as depleted reserves are not replaced. This trend is becoming increasingly apparent, as production has been falling at a compounded annual rate of 2% since 2010 while total reserves and resources have lost on average 3% per year over the same period.

We maintain our positive view on gold miners’ shares in the shortterm and believe they will continue to perform strongly over the next few months due to historically low valuations, seasonality factors and rising global growth. However, if the reserve depletion issue is not addressed aggressively in the coming months and years, gold miners longer-term prospects will remain muted.

For more information contact:

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E  info@etfsecurities.com

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).

When being made within Switzerland, this communication is for the exclusive use by ”Qualified Investors” (within the meaning of Article 10 of Section 3 of the Swiss Collective Investment Schemes Act (”CISA”)) and its circulation among the public is prohibited.

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction.  No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.