Tuesday, September 15, 2009

>$1,000: Can gold hold? (CITI)

Gold testing $1,000/oz — Gold is again testing $1,000/oz. At previous attempts in the past 18 months gold has failed to hold as buying has dried up and scrap flows have increased. If gold holds above $1,000 the yellow metal could find a new support level as investors and consumers become accustomed to higher prices.

Expect gold to remain range bound — Safe haven demand is moderating and while we believe gold will remain well supported, driven by US$ weakness, demand from China and inflation expectations, we expect gold to remain range bound between $900-1000/oz. US$ weakness and rising inflation represent the upside risks.

Preference for silver and PGMs — We expect silver and platinum to continue to outperform gold as economic conditions improve given their superior leverage to the industrial cycle. With the potential restocking in the global auto market and the curtailment of supply, there is potential for the platinum price to break out of the recent range and approach $1400/oz by year end.

Earnings and target price adjustments — We have refreshed our forecasts to reflect our revised gold / silver prices and have increased earnings and target prices for the majority of companies (see table below). Our global commodities team recently raised 2010E gold/silver/platinum prices by 4/13/4% to $966/16/1,350/oz.

Selecting relative value — Following strong recent performance and limited valuation upside we take a more neutral stance on the gold / silver stocks. We maintain our BUY on Fresnillo and downgrade POG from BUY to HOLD. We maintain our HOLD ratings on RRS and HOCM. We maintain our bullish stance on platinum and keep our BUY recommendations on both LMI and AQP. We maintain our HOLD on GEMD.

To see full report: PRECIOUS METALS