Gold Equities (GDX) Predicting a Rally in Gold Prices (GLD) - Nomura
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Strategists at Nomura said based on the price of gold equities, the market is anticipating a rally in the price of gold.
Tyler Broda explains: "We chart weekly P/NPVs for the gold equities using a 5% discount rate and the spot gold price. The multiples have expanded since last week and both Randgold and Polymetal are now trading at 12-month highs on spot P/NPV. In our view, this implies that the equity market is anticipating a rally in the gold price."
Broda notes the equity market has done an admirable job in anticipating the gold price would fall by compressing the P/NPV multiples through the QE3 phase late last year. Thus, a rally may be fortcoming.
But despite the evidence, the strategist sees gold heading lower.
"A rally may well be the outcome, but we continue to expect further downside in the gold price," he said. "Our analysis suggests that lower levels of investment demand have the equilibrium point for the gold price at still lower levels. If this is the case, then the equities should still have further to retrace. Should they see their multiples compress over time (like the March-June 2012 period), there could still be significant downside in share prices. We highlight that the volatility in the gold price has moved up sharply since last Friday."
Related ETFs:
Market Vectors Gold Miners ETF (NYSE: GDX)
SPDR Gold Shares (NYSE: GLD)
Tyler Broda explains: "We chart weekly P/NPVs for the gold equities using a 5% discount rate and the spot gold price. The multiples have expanded since last week and both Randgold and Polymetal are now trading at 12-month highs on spot P/NPV. In our view, this implies that the equity market is anticipating a rally in the gold price."
Broda notes the equity market has done an admirable job in anticipating the gold price would fall by compressing the P/NPV multiples through the QE3 phase late last year. Thus, a rally may be fortcoming.
But despite the evidence, the strategist sees gold heading lower.
"A rally may well be the outcome, but we continue to expect further downside in the gold price," he said. "Our analysis suggests that lower levels of investment demand have the equilibrium point for the gold price at still lower levels. If this is the case, then the equities should still have further to retrace. Should they see their multiples compress over time (like the March-June 2012 period), there could still be significant downside in share prices. We highlight that the volatility in the gold price has moved up sharply since last Friday."
Related ETFs:
Market Vectors Gold Miners ETF (NYSE: GDX)
SPDR Gold Shares (NYSE: GLD)
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