It is hard to find many analysts or market pundits who will defend gold at this point. Sterne Agee analyst, Michael Dudas, is doing just that in a fresh research call. He is finding support for gold as the exit ramp might be further down the road. His two top picks in the gold sector are Newmont Mining Corp. (NYSE: NEM) and Coeur Mining Inc. (NYSE: CDE).
Source: Thinkstock
The report indicates that gold’s recent move into backwardation suggests some near-term tightness in bullion access and market uneasiness surrounding fund liquidation and increasing short positions. Newmont Mining Corp. (NYSE: NEM) remains the top pick for Sterne Agee in large cap gold stocks. Coeur Mining Inc. (NYSE: CDE) is the firm’s small cap idea. Michael Dudas also called Barrick Gold Corp. (NYSE: ABX) oversold in the report, but his official rating remains Neutral rather than the Buy for the other two stocks.
Dudas said of Newmont:
Newmont’s second quarter operating performance was largely in line with our expectations with sales coming in slightly ahead of expectations at 1.213 million ounces as Newmont worked down inventories. Average realized prices came in at $1,415 per ounce versus our $1,400 estimate and we expect second quarter cash costs to come in around $725 per ounce, down sequentially.
In the report, Dudas said:
We think the current gold price appears to be discounting a successful and smooth Fed exit from extraordinary monetary accommodation, which appears unlikely in our view. Entering July with decidedly bearish sentiment, gold and silver prices should benefit from better physical demand, supply deferrals, extreme short positions and marginal changes in market views on taper. Like the underlying metals, we believe the precious metals shares appear to be finding a base level of valuation. With investor sentiment entering July at Antarctic levels, macro news flow should continue to fuel a rally.
Below is a condensed chart from this analyst report showing the performance and price target changes through time on the Coeur and Newmont:
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