Why KeyBanc Initiates Coverage On Precious Metals

Real interest rates are likely to turn “increasingly negative” given the massive global debt outstanding and gold prices are inversely correlated with real rates, according to KeyBanc Capital Markets.

The Precious Metals Analyst: Adam Josephson Initiated coverage of North American gold miners Barrick Gold Corp GOLD, Newmont Corporation NEM and Agnico Eagle Mines Ltd AEM with a Sector Weight rating. Josephson also initiated coverage of precious metals royalty/streamer Wheaton Precious Metals Corp WPM with an Overweight rating and a price target of $47.

The Precious Metals Thesis: Gold prices are technically close to “where real rates suggest they should be,” resulting in our neutral near-term view, Josephson said in the Initiation note.

“Over any meaningful period, royalty/streaming companies have outperformed both gold and gold miners owing to the attractiveness of the former’s business model (capital- and G&A-light, leverage to commodity prices without the accompanying direct cost inflation risk, and the ability to diversify their portfolios),” the analyst wrote.

“Given rising inflation and jurisdictional risks, ongoing pandemic-related disruptions, and the mining industry’s inability to generate production growth, we expect the royalty/streaming companies to maintain their outperformance for the foreseeable future,” he added.

Price Action: Barrick Gold shares are down 0.69% at $18.10; Newmont shares are down 0.074% at $54.01; Agnico Eagle Mines shares are down 0.68% at $50.80 and Wheaton Precious Metals shares are down 0.13% at $39.40 at publication Friday.

Photo: Sharon McCutcheon via Unsplash