Gold’s hot streak is likely to continue over the medium term as the commodity known for thriving during periods of economic uncertainty has “found its footing again,” says CIBC’s Daniel Greenspan.
Falling interest rates, a weaker U.S. dollar, trade war fears, tensions in the Middle East, and the recent coronavirus outbreak in China have all driven gold prices higher, said Greenspan, senior equities analyst for mining and materials at CIBC Asset Management.
The precious metal has appreciated about 25% in the last eight months, he said in a Jan. 28 interview.
“There is a compelling case to be made to stay long gold in the medium term,” said Greenspan.
“Increased uncertainty over the global economic outlook remains high. We see higher risk of further interest rate cuts to help support global growth, and we’re seeing negative real interest rates around the world, which we think is supportive for gold in the coming quarters.”
At the height of the global financial crisis, gold went from $800 an ounce in 2008 to $1,100 an ounce by year-end 2009, Greenspan said, hitting an all-time high of almost $1,900 in late 2011.
“That was when interest rates bottomed, quantitative easing expanded, and the U.S. dollar weakened,” said Greenspan, who manages the CIBC Canadian Resource Fund and the CIBC Precious Metals Fund.
The price then declined as investors became “complacent,” he said. “They were comfortable with relatively steady global growth.”
If coronavirus fears diminish, he said, the price of gold could go down as well.
Speaking late last month, Greenspan said the “premium baked into the gold price” wasn’t “fundamentally justified by the market.”
The virus has killed more than 400 people, with more than 20,000 infected as of earlier this week.
Greenspan and his team are overweight in gold in a number of their funds. “We generally view exposure to gold as a good hedge against global macro risks, and a good diversifier in the portfolio.”
However, gold companies often face operational challenges and political risks, so Greenspan said he favours high-quality companies in lower-risk jurisdictions.
One such company is Newmont Corporation, whose $10-billion acquisition of Goldcorp gives it value that “the market’s not giving the company credit for,” he said.
Newmont is backed by a strong management team and balance sheet, he added, and could “close the valuation gap with some of the senior peers as they deliver on their new assets.”
Another company he likes is Kirkland Lake Gold, whose $4.9-billion acquisition of Detour Gold received shareholder approval last month.
“[Kirkland] will be able to deliver on that value over time,” Greenspan said. “Again, Kirkland’s a company with a strong balance sheet, a strong management team, [and is] operating in safe jurisdictions in Canada and Australia.”
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