State Street Investment Management strategists said Thursday that demand for monetary hedges and physical gold are likely factors supporting the outlook for bullion, even as spot prices face near-term pressure from oil-driven volatility.
While spot gold prices may face near-term struggles amid oil-driven volatility, structural demand for the precious metal persists, the strategists said. Gold is likely a potential hedge against duration exposure and currency debasement, as debt and inflation keep long-term yields higher, they said. Global demand for physical gold, meanwhile, from Chinese retail to central banks could further support prices, they added.
State Street expects gold prices to be $4,750 to $5,500 a troy ounce this year in its base scenario, while its bull case sees $5,500 to $6,250, the strategists said.
Spot gold was 0.7% higher at $4,100.44 an ounce in European morning trade, according to Dow Jones Newswires data. Earlier in Asian trade, spot gold fell 0.3% to $4,057.60 a troy ounce, according to XS.com analyst Antonio Di Giacomo. While the U.S.’s May consumer-price increase was in line with expectations, investors remain concerned about the inflationary effect of the sharp rise in energy prices due to the ongoing Middle East conflict, Di Giacomo said in an email. A significant portion of the market now considers the next Federal Reserve rate increase to be possible before the year ends, which is likely weighing on the precious metal’s prices, the analyst said.
In other basic-materials news, UBS questioned whether BHP’s incoming CEO Brandon Craig needs to rethink metallurgical coal’s role in the miner’s portfolio. BHP said it won’t invest in the business due to an onerous royalty structure in Australia’s Queensland state, where it mines. “We believe some investors question whether the new CEO should explore alternative strategies especially as holding (not investing in) depleting assets typically results in cost challenges and impacts value medium-term,” UBS said. Valuations achieved in recent metallurgical-coal asset sales have been attractive, and the royalty structure in Queensland is unlikely to change until at least 2032, the bank said. UBS has a neutral rating and A$60.00 target on BHP. Shares were up 0.3% at A$60.35.
Canfor’s acquisition of PinkWood’s Calgary-based I-joist facility for C$68 million is a small but strategically useful move that expands its engineered wood footprint in Western Canada, according to TD Cowen in a note. Analyst Sean Steuart said the deal “is not thesis-changing but improves CFP’s cash flow profile, provides vertical integration with existing sawmills in Western Canada, and offers upside as utilization rates at the facility improve.” The plant is currently running at around 50% capacity, and Steuart noted that the price paid looks appealing given the potential to lift output as housing demand recovers. Steuart said he expects the PinkWood facility to have relatively stable returns with double-digit EBITDA margins. “Given the capital-light nature of the business and margin stability, we expect PinkWood will be a reliable cash generator,” Steuart added.