Credit Suisse: Major Bank Admits Gold and Gold Mining Stocks are Undervalued

It is not often that a major banker will speak out in favor of the yellow metal, but one Credit Suisse analyst is speaking up for gold. Head of Global Equity Strategy at Credit Suisse, Andrew Garthwaite, has several key arguments in gold’s favor. Not only is the metal currently undervalued and heading up, but gold mining stocks are well-positioned as excellent hedges and investments. 

If you have been following the latest mining news, you will know that much of the world’s investment focus is on the dividends coming out of hard metals and battery metals. As gold’s unexpected ally at Credit Suisse points out, however, that gold doesn’t just deserve your attention, it is worth it. 

What’s up with Gold Prices? According to Credit Suisse Banker, they are Down!

It is particularly ironic to hear Credit Suisse talking about undervalued gold when Mr. Garthwaite had published a report last year with the awkward (in hindsight) claim “we think [gold] could reach $2,200.”

It doesn’t take a big-name banker to notice that gold has been suffering since its highs in the pandemic. The Credit Suisse analyst takes it one step further, however. He notes both its underperformance against commodities, nearly a decade low against silver, and in inflation-adjusted terms is actually down 20% from a 2011 index. 

This brings us to his main argument: that inflation needs to be strongly taken into consideration. As the US hits debt to GDP ratios far above the IMF’s danger zone for currency crises, central banks across the continents are flooding the money supply to help keep their economies afloat. Investors are already leaning towards other hedges, such as the treasury bonds CS follows via TIPS indicators, but gold has not yet caught up, which means it is an excellent time to buy if you are looking for a straight hedge.

Or the perfect time to look into high yield gold mining stocks if you are hoping to capitalize on returns as well. 

Gold Mining Stocks on Banker’s Radar as Metal Price Is Likely to rise

Despite the strong commodity-driven showing in the mining sector at the moment, gold-focused companies have been underperforming. With copper and battery focus metals overperforming, gold has been suffering under its comparatively weak price.

This has manifested in gold mining stocks trading almost 3/4ths the valuations of the market as a whole. Thus, a temporary weakness, unrelated to their fundamentals, makes for a cheap acquisition with a high potential, not just as a hedge against broader market concerns but for returns in their own right. 

Indeed with gold prices likely to rise (CS estimates at least 7%), gold mining stocks will be seeing a significant bump. Furthermore, unlike even the most competitive growth-driven stocks, gold mining stocks offer a hedge against downwards market outcomes which are looking all too likely. 

Which Gold Mining Stocks do Credit Suisse Recommend?

While the analyst doesn’t dwell too much on specifics, a number of gold-focused extraction companies are mentioned as being both affordable and likely to pay off. Barrick Gold, Kinross Gold, and Yamana Gold are all among the companies listed, but what sets them apart in the eyes of our banker?

Exposure to gold: first and foremost, these and others are heavily focused on the precious golden metal. This means that they are even more undervalued now than a balanced company in the same space. Furthermore, when gold does adjust back upwards, these gold-focused mining companies will have greater upward momentum. 

While the Credit Suisse banker falls short of an outright buy push on gold, it is clear they think they know where the sector is headed. Only time will tell just how accurate they will be, but it certainly looks like it is a question of size, not direction, of incoming shift. 

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(Featured Image by Marco Verch via Flickr)

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