Gold rush
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GOLD RUSH
Gold is up some 12% so far this year and hovering around record territory but UBS says it is not yet back to its old highs in inflation-adjusted terms, as it sticks to its "overweight" on gold stocks.
Gold stocks look cheap, strategists at the bank say, observing that gold miner shares have lagged the gold price. Normally they have a beta of 2 times to the gold price, which implies they could rise 45% from current prices, UBS notes.
UBS says its preferred gold miners globally are Anglogold Ashanti ANGJ.J, Barrick Gold ABX.TO, Centamin CEY.L, Endeavour Mining EDV.L, and Evolution Mining EVN.AX.
Its upbeat view on gold also stems from structural reasons, such as central bank diversification into the precious metal on geopolitical tensions and sanctions risks as well as concerns about U.S. Treasuries. This would be a continuation of the recent trend which has seen central banks accelerate gold-buying.
UBS strategists say in a note that if all central banks, especially in emerging markets, had a minimum of 10% of their reserves in gold the increase in gold demand would be 75% of global supply.
Central banks in the U.S. and euro area have over 50% of their reserves in gold, where as many others are in single digits, according to data cited by the strategists.
Even if UBS says this is not its base case, it expects official sector diversification into gold to continue.
It notes as well that increased U.S. fiscal risk and fallout from China triple bubble of credit, real estate and excess investment could support diversification into gold.
(Anna Pruchnicka)
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