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Gold price may be stuck, but there is still plenty of value in the marketplace – BMO

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(Kitco News) - 2021 has seen a strong start for commodity markets; however, according to an analyst at BMO Capital Markets, there is one asset that is conspicuously absent from the uptrend, which might not be so bad.

In the first month of 2021, the gold market has been trapped in a fairly narrow trading range bouncing off support around $1,800 an ounce, but unable to break through resistance at its 200-day moving average around $1,866.

“Usually, the first weeks of the year are positive for gold prices, as new cash inflows are invested. On average, the first three weeks of 2013-20 saw a 3% gold price gain, with each and every year seeing a positive move,” said Colin Hamilton, commodities analyst for the Canadian Bank, in a report Friday.

However, so far this year, the gold market has seen disappointing price action, down more than 5% from its highs at the start of the month. April gold futures last traded at $1,856.70 an ounce, down 0.17% on the day.

However, Hamilton said that the price action appears to be a normalization of the gold market, which comes after the historical price action seen last year.

With no change in Federal Reserve interest rate policy expected, with another year of relatively flat supply, and with traditional consumer demand recovering, 2021 is looking more like a steady as she goes” period,” he said. In our view, a stable year for gold would not be a bad thing…”

Although gold is struggling to find consistent bullish momentum, Hamilton said that he is expecting the market to be well support around $1,800 an ounce.

The macroeconomic backdrop undoubtedly remains a precious-positive one, aided by rising inflation expectations amid an ambitious US stimulus plan and interest rates that look set to remain low for some time amid the Fed s new policy of inflation targeting,” he said.

Hamilton also added that there will still be plenty of investment opportunities even in a stable price environment around $1,800 an ounce. He noted that mining equities are attractive, undervalued assets.

Hamilton said that an average price around $1,800 an ounce is still extremely positive for mining companies, and 2021 could see record profits for gold miners.

Currently, BMO Capital Markets sees gold prices averaging 2021 at $1,894. If that guidance is achieved, it will represent the highest average price in gold s history.

This very much points to a year of record profitability for the global gold industry, even without prices trending higher. Even with capex growth of 25% baked in for this year, the producers under BMO coverage should generate a ~50%-plus free cash flow gain y/y. To us, this remains the story in gold, rather than relying on further price appreciation,” he said.
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