Mining Equities Shaping Up For A Relief Rally
We expect mining equities to stage a relief rally in the coming weeks, albeit within the confines of a longer-term downtrend. A break higher by the Bloomberg World Mining Index illustrates that several factors are aligning that should temporarily boost sentiment towards mining equities after three years of decline.
The catalyst for stronger investor demand for mining equities will be resilient metal prices. We expect gains for copper, aluminium, iron ore and zinc prices in the coming weeks. All these metals will benefit from an uptick in Chinese manufacturing activity ( see 'Surprise PMI Print Elicits Upside Risk To Growth', June 23), as well as commodity-specific factors ( see 'Metals Resilience To Persist...For Now', June 27).
We have also turned neutral gold, from bearish ( see 'Exiting Bullish Platinum vs. Gold View', July 1). We no longer target a move below USD1,200/oz by the end of 2014 and instead expect trade between USD1,200-1,375/oz. Elevated geopolitical risks to the global economy stemming from conflict in Iraq, combined with low developed market fixed income yields will maintain a supportive environment for gold prices. As a result, we do not rule out further gains for gold mining equities, which have already staged a relief rally in the year-to-date. A break higher by the NYSE Gold BUGS Index out of its current consolidation pattern would see us target additional strength for gold miners, albeit within the confines of a multi-year downtrend.
|Additional Gains In Q314|
|Bloomberg World Mining Index (weekly chart)|