|
pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 06/01/2007 : 19:38:52
|
You must be logged in to see this link.
UBS worries that gold may be losing its luster
While other investment firms have recently lauded gold, the UBS Investment Research group was far more pessimistic in its most recent report, noting that UBS clients are “increasingly questioning the role of gold in a portfolio.
( )
Author: Dorothy Kosich
Posted: Friday , 01 Jun 2007
RENO, NV -In its latest analysis published Thursday, UBS Investment Research questions if gold has lost its luster, citing the breakdown of the relationships between oil and gold, and between the U.S. dollar and gold.
"Overall, we are growing more concerned that North American gold equities (US Gold Miners) may have lost their relative multiple advantage over other commodity producers and may offer less portfolio protection in the event of a broader equity market downturn," the analysts said.
Noting that gold has long held an advantage to other metals due to its role as a reserve currency and an inflation hedge, UBS analysts claimed that gold is no longer a reliable portfolio hedge for generalist investors.
"More recently, gold bullion has underperformed oil and has not shown its typical negative correlation to the U.S. dollar or the broader markets," the analysts said. "Political risks premiums are also at records lows which has eroded gold's role as a safe haven investment."
.......(Though the price of the yellow metal has doubled since 2001.)
"Consequently, many of our clients have been increasingly questioning the role of gold in a portfolio."
.......(And these clients will scream the loudest when gold goes up in price without them.)
Meanwhile, UBS also raised the question of whether gold equity valuations have become permanently impaired.
"While bullion has underperformed its traditional relationships,
...(Didn't it double in 6 years?)
gold equities have significantly underperformed bullion
since February 2007,"
according to their analysis.
...(Underperforming for 4-5 months, Wall street expects gains every month, every day, every hour, mining companies are not a repeat of the dot coms.)
Golden Star is the only gold equity that outperformed bullion over the last three months, according to UBS.
"The underperformance of gold equities versus bullion can be explained by
a) the emergence of the gold ETF and its cannibalization of investment flow;
b) the better equity performance recently available in base metals; c) strong gains from some of the fringe metals such as molybdenum; d) there have also been fewer gold discoveries made which has minimized the optionality of gold equities."
.....(Fewer new gold strikes, less competition for existing gold miners, good for the price.)
UBS asserted that gold margins have eroded, claiming that "operating and capital costs have increased more rapidly than the gold price if one excludes by-product credits."
They attributed poor cost performance to the lack of new mine development and an aging asset base. "New development projects are generally inferior in quality to existing assets and new growth is coming at the expense of free cash flow."
.....(They of course ignore the bear market for all metals for two decades and expect miners to turn on a dime and start producing right now.)
"Why pay a premium valuation for operational underperformance, execution risk, the potential for dilutive acquisitions for the sole purpose of growth, and most importantly a more opaque supply and demand balance?"
Noting that Barrick Gold Chairman Peter Munk recently admitted that Barrick may have to eventually expand further into non-gold precious or base metals production if its share price continues to underperform, UBS suggested that perhaps "all gold companies should pursue base metal or platinum acquisitions while they still have a multiple advantage."
.....(Translation, share price, share price, share price, and dividends and production be darned, share price is all that counts.)
Despite today's trend of producer de-hedging, UBS asked if "perhaps gold companies should also pursue hedging if gold optionality is no longer superior to base metal optionality?
Although North American gold equities on average are at an 11% discount to forward curve NAV valuations,
UBS suggested that "base metal equities still look even more inexpensive," which are at a 24% discount.
Despite their misgivings about the value of gold equities to a portfolio, UBS still remains bullish about North American gold producers Kinross (KGC), Agnico-Eagle (AEM) and Goldcorp (GG), "whether using our traditional multiple approach or the forward curve pricing scenario."
...(With gold research like this, now you know whay the Mogambo goes "Ugh" all the time.)
I should have chosen "Cut-n-Paste" as a forum name, since that is what I do, mostly.
|
|
Who is short sighted, Wall Street or its clients?
Forum Locked
