The precious metals sector is muddled right now by mixed signals in US economic data, according to a report from Canaccord Genuity (TSX:CF, LSE:CF).
The firm pointed to strong employment data and the recent FOMC meeting as reasons why gold has “taken a step back from its recent strong run,” and fallen more than 4% over the past few days from a recent peak of $1,950 an ounce.
However, the commodity is still up 15% from its September 26 low of $1,622/oz, analysts noted, and gold equities are up 37%.
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“US economic data continues to confound a lot of investors (including us) with mixed signals,” the analysts said. “... We believe the biggest question for investors remains whether the Fed can pull off a soft landing or whether a recession ensues. In our view, a potential recession would likely accelerate Fed rate cuts, which should be positive for gold.”
Historically, recessions have been good for gold. The firm noted that gold has averaged a 16% increase over the past seven recessions dating to the early 1970s, compared to a 5% drop in the S&P 500.
Ultimately, Canaccord analysts are bullish on gold this year.
“Our macro view hasn’t changed,” analysts said. “The FOMC’s 25bps increase was in line with expectations, and the market continues to price in a terminal rate of ~5%. Despite the short-term pullback, we think gold and gold equities have more room to run ahead of a Fed pause with a non-trivial chance of a recession emerging.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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