Gold has given up its historic correlation with real interest rates in US dollar terms, despite this, Jefferies’ global head (equity strategy) is not giving up on gold and gold mining stocks.
Gold has given up its historic correlation with real interest rates in US dollar terms, moving flat while the real 10-year Treasury yield has declined by 40 basis points since mid-June. However, despite this, Jefferies’ global head (equity strategy) is not giving up on gold and gold mining stocks. “GREED & fear will not give up on gold and gold mining stocks while it is also worth noting that investor positioning favours a rally in gold in the sense that net long positions are rising again,” Chris Wood said in his weekly note.
“Money managers, such as hedge funds’ net long position in Comex gold futures and options rose from a recent low of 41,896 contracts in mid-March to 105,811 contracts in the week ended 27 July, after declining from a peak of 292,066 contracts in September 2019,” Chris Wood highlighted. In the previous week, Gold October futures at MCX plunged by 2.52% at Rs 46,640 per 10 gram along with rupee appreciation, according to Tapan Patel, Senior Analyst (Commodities) at HDFC securities. “We expect gold prices to trade lower in the coming week with COMEX spot gold resistance at $1800 per ounce and support at $1750 per ounce. At MCX, Gold October prices have near term resistance at Rs 47,600 per 10 grams and support at Rs 46,000 per 10 gram,” he added.
Mining stocks in the last one month have slipped
-New Gold Inc – 11% fall
-AngloGold Ashanti – 11% fall
-Wheaton Precious Metals Corp – 0.31% fall
-Agnico Eagle Mines – 1.55% down
-Newmont Corporation – 6% fall
-Barrick Gold Corporation – 2% down
-Hecla Mining Company – 13% down
Not cutting exposure to gold and gold mining stocks, Chris Wood’s recommended portfolio for US dollar-denominated pension funds still has a 65% allocation to gold and gold mining stocks.
May add to Bitcoin position
Further, the global market strategist has decided to maintain his 5% allocation to Bitcoin starting in December 2020 when the cryptocurrency was trading at a price of $22,779. Reiterating support for Bitcoin, Chris Wood said he intends to add to his position if the cryptocurrency falls to $20,000 price level again, but adds that it may be a level that is never seen again. “Certainly, the one-day intraday 18% rally from $34,453 to $40,545 on July 26 looks like a climatic liquidation of leveraged short positions,” he added.