UBS Lowers Gold Expectations Again

by: FP Trading Desk November 02, 2008 | about stocks: ABX / GG / NEM    

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Thursday it was oil and natural gas, Friday it was precious metals. UBS has again lowered its 2009 forecast for gold, this time from US$825 per ounce to US$700, while also cutting silver sharply from US$15.08 and US$12.58 in 2009 and 2010 to US$8.40 and US$8.95.

“The revised UBS commodity price outlook reflects an extended recessionary scenario with base metal prices in both 2009/2010 that are mostly below the marginal industry costs and current spot prices,” the investment bank said in a report. “If such a recessionary scenario were to unfold, we believe that almost all North American mining companies could experience challenges to liquidity and/or business continuity."

Platinum saw a US$200 per ounce reduction for those years to US$900 and US$1100, respectively.

UBS has also adjusted its base metals forecasts. Most significant for gold equities, copper moved from US$2.50 and US$3.00 per pound to US$1.30 and US$1.55.

“UBS believes gold will remain under pressure in 2009 from a combination of slowing demand for jewelery and disinvestment as inflation slows,” the report said. “Silver forecasts have been lowered sharply to take account of the dramatic underperformance of silver compared to gold in recent months. Platinum forecasts have been reduced to reflect exposure to weak auto sales in 2009/2010 due to a deeper global slowdown.”

As a result of these changes, its 12-month price targets for gold companies in its coverage universe fall by an average of 35%.

UBS analyst Brian MacArthur told clients that gold companies with primary listings in the U.S. have historically received a higher valuation. He highlighted Newmont Mining Corp. (NEM) and Barrick Gold Corp. (ABX) as the best examples of this, but also Goldcorp Inc. (GG). He also said companies that get a greater proportion of their revenues from non-gold sources tend to trade at a significant valuation discount.

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This article has 13 comments:

  •  
    Nov 02 09:10 AM
    The fact that gold is being lowered really doesnt matter for the goldbugs who are hell bent on losing their money in this depreciating asset.

    Gold topped in March 2008 as the dollar strengthened.
    Reply | Link to Comment
  •  
    Nov 02 10:24 AM
    UBS was recommending long and strong in stocks in July. They have no credibility. How can anyone believe, or trust what any "analyst" pumps anymore? These guys all have a personal interest in what they predict. Being a financial analyst is a license to steal.
    Reply | Link to Comment
  •  
    Nov 02 10:25 AM
    Yes, and now the dollar is headed straight down again, beginning in early 2009. Then, you will really see a gold top.


    On Nov 02 09:10 AM CLH wrote:

    > The fact that gold is being lowered really doesnt matter for the
    > goldbugs who are hell bent on losing their money in this depreciating
    > asset.
    >
    > Gold topped in March 2008 as the dollar strengthened.
    Reply | Link to Comment
  •  
    Nov 02 10:31 AM
    This progonosticating of gold reminds me of Mark Twain's definition of a gold mine. "A hole in the ground surrounded by liars."
    Reply | Link to Comment
  •  
    Nov 02 12:17 PM
    People should do their own ground up fundamental reviews of companies and trends before buying any stock for more than a trade. Check out the industry sites. Read Capex detail in annual reports, cost trends, quarterly reports on company investment going forward, look at debt/who holds it/type of debt. LIBOR down will help some cos a lot. Big drop in demand for mining equip will drive discounts for cos that need new loaders/trucks. Oil down will ease site costs. Labor scared of layoffs will reduce high labor costs.
    Gold down 30% from peak is not as bad as say PRU down from 110 to 30! so dramatic cost decreases coupled with a floor price in the 700-1000 range, co's. putting on hedges again to protect cash flow and lots of uncertainty will allow industry to recover.

    For that 5-10% you should hold for protection in your investments, now is a good entry point.
    Suggest CEF which I am looking at, NXG which I own as a cheap option on the whole industry, GFI as a beaten down major with access to cash to acquire/new management in place.
    big drop in CN $ will make the CN cos look cheaper to the world looking for cheap assets.
    Reply | Link to Comment
  •  
    Nov 02 12:37 PM
    I AM AFRAID A MAJOR WILL BUY NXG ON THE CHEAP!
    Reply | Link to Comment
  •  
    Nov 02 12:50 PM
    Swiss banks will die off as the yeas go bye. Their country was a fortified stronghold before the age of rockets and nukes. It is no more.

    UBS has made an attempt to become a modern international bank. It can not do it for many reasons chief amoung which is the inability of the Swiss nation to pony up the money to keep them solvent in credit crises such as the current one which will last through 2008, 2009, 2010, 2011 and 2012.

    Never quote a banker particularly a Swiss one as all bankers are self serving, miss educated, pitch persons who will be long gone with the clients money when the chickens come home to roost.

    Why would anyone believe someone who's pitch is "give me your money and I'll make you rich"?

    Good luck.
    Reply | Link to Comment
  •  
    Nov 02 03:33 PM
    Sorgmot,

    That pretty well sums up my viewpoint on Swiss Bankers, Thanks
    Reply | Link to Comment
  •  
    Nov 02 11:33 PM
    Retail gold and silver i.e. maple leaf one ounce gold and one ounce silver coins has dropped lately to about $900 U.S. for gold and $17.50 for silver (from $930 - 980 and $20 - $22) . This could be a portent of a major retail price drop in precious metals. Analyses should be done not only for current retail prices but also for the amount (quantity) offered for retail sale. My own subjective assessment is that more quantity is being offered and therefore retail prices could be moving down slightly.

    Retail platinum has decreased from about $1550 U.S. to about $1400 as well. Retail palladium is still for the most part - not available.
    Reply | Link to Comment
  •  
    Nov 03 01:16 AM
    Why is it that you cant get delivery of gold or silver but the price keeps falling??? Can anyone spell manipulation? I just dont understand who.

    But my bet is friends of Paulson...
    Reply | Link to Comment
  •  
    Nov 03 01:21 PM
    Very interesting.. I remember when Merill said Gold is going to $1500 WITHIN the next few years.. I agree Econ 101, there is definately some manipulating going on.. gold prices should be much higher than the current trading price.. I figure once OPEC makes the final oil cut and the price starts to recover..the commodity train will be in full force again.

    I read the first post of a gold valuation series today, thought I'd share for other gold diggers out there ;)

    www.stockresearchporta.../

    OilyGasMiner
    Reply | Link to Comment
  •  
    Nov 03 05:38 PM
    Gold spot price is definetly manipulated (through paper gold). It's held down, and pounded down a little more all the time.

    First disinflation (now), followed by inflation (later), last but not least hyperinflation.

    If I had extra USD to invest, I'd trade it for physical gold at any price below $800 spot (I expect the spot price to drop below $500/oz for a short period, but I don't expect anyone will be able to be able to get their greedy hands on any physical metal at those fake low prices).

    Therefore, I'd buy and hold the real deal while you can in preperation of the coming worldwide economics fireworks show of 2009. If you try and time the market you will get stuck with great priced paper promises for non-existent gold, meanwhile everyone is defaulting on all kinds of promises. Do you want to be that guy/girl?

    All the while the media will be guiding the dumb masses into the USD; 98% of which will bite the hook. Not you.

    This is just my vision of how things play themselves out... I hope I'm wrong.
    Reply | Link to Comment
  •  
    Nov 03 10:04 PM
    Hey, where's that $250 oil GS was forecasting? I think my time machine needs a replacement flux capacitor. Okay, I'll sell my gold now that it's price has fallen off a cliff and taken such a large chunk out of my life savings. Good thing I won't be needing that money after all since post-bailout deflation will bring me back up to par.
    Reply | Link to Comment
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