Credit Suisse upbeat on gold, sees 2020 average around $1,570/oz
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(Kitco News) - Credit Suisse looks for gold to remain underpinned by the factors supporting the metal even before the recent escalation in U.S.-Iran tensions, calling for gold to average around $1,570 an ounce in 2020.
The metal early Monday hit its highest level since 2013, drawing a flight-to-safety bid on geopolitical jitters due to growing tensions between the U.S. and Iran. As of 12:36 p.m. EST, spot gold was trading at $1,562.30 an ounce after backing down from earlier highs.
“Gold has moved up significantly over the past month, with this week’s surge due to escalating tensions between the U.S. and Iran following the U.S. assassination of Iran’s top general Qassem Soleimani,” Credit Suisse said in a research report Monday. “However, gold was rallying even prior to this and for reasons that appear less short-lived.”
In particular, Credit Suisse cited a weaker U.S. dollar, as well as lingering concerns surrounding the U.S.-China trade war. While a “phase one” trade pact is supposed to be signed this month, the details and timing of a more comprehensive agreement – if one materializes -- are uncertain, Credit Suisse pointed out. Other factors that are constructive for gold include mixed U.S. economic data, dovish central-bank policies globally and volatility in equities.
“We expect these factors to persist and maintain our view of gold averaging ~US$1,570/oz in 2020,” Credit Suisse said.
At current gold prices, analysts said they do not expect a material change in the corporate strategy for senior gold producers to prioritize free cash flow and return of capital to shareholders, such as higher dividends and buybacks.
“Newmont's announcement today of a 79% higher dividend is indicative of this trend,” the bank said. “For intermediate producers, we continue to expect consolidation as they look to achieve scale.”
However, analysts said they do not see a return to the “costly” merger-and-acquisition announcements and expansion projects seen during the last bull market for gold, given investor focus on “capital discipline.” Further, they pointed out that gold is still far below its record 2011 price, when the metal topped $1,900 an ounce.
Credit Suisse’s favored gold stocks are Agnico Eagle Mines Ltd. (NYSE:AEM, TSX:AEM) and Newmont Corp. ( (NYSE: NEM, TSX: NGT).
“We like Agnico Eagle for its best-in-class operational track record, organic production growth, and FCF [free-cash-flow] profile,” Credit Suisse said. “We like Newmont on improving operations at the legacy Goldcorp assets, which should lead to a re-rating, along with FCF generation.
“We highlight that in a rising gold environment, intermediate producers tend to have the most torque, followed by senior producers, and then royalty companies.”