Monday, October 21, 2013

Going for Gold: HSBC Upgrades Miners on Potential Precious Metal Rebound

If you’re bullish on gold, you better be bullish on gold miners–and HSBC is feeling pretty good about both.


In a note released yesterday, HSBC upgraded a number of gold stocks as the bank expects the price of gold to rebound. Analyst Patrick Chidley and team explain:

Despite the rush to the door by speculators on the COMEX and in the [SPDR Gold Trust ETF (GLD)], we continue to believe the fundamentals are supportive of higher prices. China continues to report gold imports at very high levels (over 130 tonnes in the month of August from Hong Kong alone). Based on our belief that the pressure on gold price is temporary, due to continued strength in Chinese demand, continued strong Indian demand (despite recently ramped up government tariffs on gold imports), growing demand in other emerging markets countries, continued central bank purchases, a strong physical supply response coupled with a lack of new projects coming into production in the next few years, we believe the gold price will rebound in the next few months.

Hence, given the rebasing of gold equity prices to reflect the current gold price below USD1,300/oz, and HSBC's view that gold can climb back above USD1,400/oz within a few months, we are upgrading a group of stocks and hold a generally bullish view on the gold sector, looking forward, while recognizing the current situation is tough unless gold rebounds.

As a result, Chidley and team upgraded Agnico Eagle Mines (AEM) and Yamana Gold (AUY) to Neutral from Underweight, and raised Barrick Gold (ABX), Goldcorp (GG) and Iamgold (IAG) to Overweight from Neutral. Gold Fields (GFI) was downgraded “due to increased risk and also reduced expectations for the South Deep operation,” Chidley says.

Agnico has gained 0.9% to $25.20 today at 3:23 p.m., Yamana has risen 2.8% to $9.63, Barrick has advanced 1.7% to $18.83, Goldcorp has jumped 2.3% to $24.90, and Iamgold is up 3.6% at $4.93. Gold Fields has ticked up 0.2% to $4.49.

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