It’s all about gold and the dollar now
“Gold macro story more compelling
than ever,” trumpets UBS research
from 5 July. “We think gold has
entered a new phase.”
Switzerland isn’t in the European
Union and is a frequent holder of
referendums. As such the Swiss are in
a better position than most to bring
some educated objectivity to the likely
impact of a British exit. Not for the
Swiss the anguished distortions of
disenfranchised London elites, nor the
blithely blind assurance of the Leave
camp in the face of tumbling credit
ratings tumble, and nor indeed the
wild Trumpist readings that have
come from the other side of the
“The Brits have taken their country
back,” argued John Bolton, the former
US ambassador to the UN on
American television last week.
Well, maybe. But it’s funny how such
a statement actually fits more neatly
into the US narrative than into the
There’s no such rhetoric from the
Swiss side of the newly strengthening
European fences – the Swiss are
quietly comfortable outside of the
European Union and on the whole –
and in the most neutral way possible –
happy to see another major player in
the global financial system jointing
their ranks.
Instead, the most interesting noises
that have been issuing from
Switzerland have been deadpan
analyses in the manner of that from
UBS above.
“The UK’s vote to leave the EU further
underpins gold’s macro narrative,
reinforcing the themes of further
dovish shifts in monetary policies,
consequently lower yields, and
heightened uncertainty,” adds UBS.
“We continue to expect US real rates to
fall from here and ultimately for
equilibrium real rates to settle lower
and have limited upside. These factors
justify strategic gold allocations
across different types of investors and
we expect this trend to continue.”
Meanwhile, over at Credit Suisse
they’re starting to move on from
Brexit, at least in terms of assessing
the outlook for the metals and mining
Gold still gets the headline billing
following the Brexit result, but Credit
Suisse almost seems embarrassed as
to how straightforward a call that is.
“In our view, gold is the easy-to-see
winner in the near term given last
week’s Brexit vote which has clearly
heightened political and economic
uncertainty,” said Credit Suisse
analysts in a note released on 6 July.
More interesting are the calls on iron
ore, coal and zinc.
Iron ore is a market which is likely to
remain depressed according to the
Credit Suisse number crunchers, but
which could be at least “relatively
balanced” in 2016 and early 2017,
allowing for some short-term easing
of the pressure. Be that as it may, it’s
noticeable that of a list of top picks in
the mining sector produced by Credit
Suisse, none has significant iron ore
exposure, and the only one with any
tangible and immediate connection to
the iron and steel business is Coal
In base metals, Credit Suisse backs
old stalwarts Lundin (TSE:LUN ) and
Boliden (TSE:BLS) on the basis that
there will likely be a “major supply
crunch” in zinc.
Alcoa (NYSE:AA ) is favoured in
aluminium, Aurubis (SWX:NDA) for
copper, and as an outlier Alrosa
(MCX:ALRS) for diamonds,
On the whole though, gold remains the
space to be in, according to the Swiss.
Agnico Eagle ( TSE:AEM ), Eldorado
Gold (TSE:EGO), Detour Gold
(TSE:DGC ), Acacia Mining
(LON:ACA ), Zijin Mining (HK:2899) all
make it onto the Credit Suisse “Global
Top Picks”.
But what of the reset of the London
contingent, outside of Acacia, which
Credit Suisse argues is due for double
digit margin increases this year?
The answer is that Brexit has already
locked in huge gains and sterling
weakness adds a layer of uncertainty
that’s not a current risk in any of the
other major mining markets.
After all, spare a thought for those
poor down-at-heel chaps at Goldman
Sachs. Goldman rated Fresnillo
(LON:FRES ) a “sell” at 1,194p as
recently as 15 June. The price is now
well over 1,900p, blowing Goldman’s
call well out of the water for the
foreseeable future.
That’s a performance that’s been
mirrored by Randgold in London, up
by more than 30% in sterling terms to
9,730p at the last count.
But it’s not all about sterling. Closer
to home, Goldman also called Gold
Fields (JSE:GFI) a sell at R63.8,
setting a R50 price target. Today’s
price is R80.
Let’s hope the Swiss can do a little bit
better than that.