Nomura reiterates bullish stance on gold equities, positive for gold mining ETFs

Jun 25th, 2012 | By | Category: Equities

Global investment banking giant Nomura has reiterated its positive view on gold mining stocks. According to a mid-season report on the sector, the reasons to hold gold equities have only been enhanced by wider market and macro trends.

Gold mining ETFs - Nomura reiterates bullish stance on gold equities

The historically low valuations currently priced into the gold mining sector are unlikely to persist, reckons Nomura, who are bullish on the sector.

“Record cash generation, a new industry focus on financial returns, as well as a potential forward softening in mining capex and operating cost inflation suggests to us that the historically low valuations currently priced into the sector are unlikely to persist”, the report asserts.

Nomura believes that gold price remains fundamentally supported by long-term trends including increasing gold holdings within central bank reserves, continuing strong Chinese demand, persisting negative real interest rates and a tepid supply response.

The Tokyo-headquartered bank goes on to say that the fundamental demand drivers of gold remain unchanged: “The further deterioration of the economic recovery, enhanced potential for QE and continued structural problems in the eurozone lead us to believe that gold prices will stay stronger into 2014 and 2015. Our 2014 and 2015 gold price forecasts have been increased accordingly”

FEATURED PRODUCT

iShares S&P Commodity Producers Gold ETF (SPGP)

– Tracks the S&P Commodity Producers Gold Index
providing exposure to the largest publicly-traded
companies involved in the exploration and production
of gold and related products from around the world

– Over 60 holdings, including gold mining giants
Barrick Gold, Goldcorp, Newmont, Newcrest and
AngloGold Ashanti

– Fully physically-replicated, TER 0.55%

– UCITS compliant, London listed, UK Reporting
Status, eligible for ISAs and SIPPs, registered
for distribution across much of the EU

The bank forecasts a year-end gold price of USD 1,850/oz, equivalent to an 18% improvement in the gold price over the coming six months.

Longer term, Nomura reckons that “the structural benefits of gold as an alternative asset that protects value from some of the deficiencies of unbacked fiat currency systems will be enhanced.”

The bank expects that structural changes to the world’s reserve currencies structure and a peak in Chinese FX reserves are likely to act as a favourable force towards the gold price and gold’s role in the global financial system and note that there is limited swing capacity to meet further demand shocks.

Polymetal (POLY), African Barrick Gold (ABG), Petropavlovsk (POG), Centamin (CEY), Newcrest (NCM), Evolution (CAH), St Barbara (SBM) and OceanaGold (OGC) are among the bank’s top picks in the sector.

Following is a list of gold mining ETFs available to UK-based investors:

iShares S&P Commodity Producers Gold ETF (SPGP)
The iShares S&P Commodity Producers Gold ETF tracks the performance of the S&P Commodity Producers Gold Index. This index provides exposure to the largest publicly-traded companies involved in the exploration and production of gold and related products from around the world. Physically replicated. London listed. TER 0.55%.

ETFX DAXglobal Gold Mining ETF (AUCP)
The DAXglobal Gold Mining Fund tracks the performance of the DAXglobal Gold Miners Index. This index gives investors the opportunity to participate in the performance of companies operating around the world primarily in the areas of gold mining. The constituents are exclusively companies that generate at least 50% of their income from this sector. Swap-based. London listed. TER 0.65%.

RBS Market Access NYSE Arca Gold BUGS Index ETF (GOLB)
The RBS Market Access NYSE Arca Gold BUGS Index ETF tracks the performance of the NYSE Arca Gold BUGS Index. The Gold BUGS (Basket of Un-hedged Gold Stocks) Index is a modified equal weighted index of companies involved in gold mining. The index provides significant exposure to near-term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. Swap-based. London listed. TER 0.70%.

Market Vectors Junior Gold Miners ETF (GDXJ)
The Market Vectors Junior Gold Miners ETF seeks to track the performance of the Market Vectors Junior Gold Miners Index, a rules-based, modified market capitalization-weighted, float-adjusted index intended to investors exposure to small- and medium-capitalisation companies in the gold and silver mining industry. Physically replicated. NYSE Arca-listed. Certified as a UK Reporting Fund by the HMRC. TER 0.54%.

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