Trade view update: Long DAXglobal gold miners index

Improving fundamental and equity market sentiment to drive upswing...

ETF Securities Research

– With gold mining stocks trading near the lowest level since 2008, we believe they have reached a point where upside potential now far outweighs downside risks, making this a good entry point for investors with medium-term time horizons. Our initial target of 265 index level was hit on Tuesday and we believe there is potential for further price rises. We think that miners’ share prices could reach the levels last seen in August 2013 and we now target an index level of 295.
– Although we estimate gold miners still may have a further US$113bn of reserves to write-down, with gold miners’ share prices down 52% over the past year and 66% over the past 3 years, we believe much of this expected write-down is already in the price.
– Gold miners’ fundamentals are finally improving, with costs falling 15% in Q3 2013 compared to the previous quarter. While costs remain a key concern, miners have made good progress in containing expenses and closing down loss-making mines, in turn improving profitability.
– Gold miners’ shares are currently trading at par to net asset value (NAV) on our estimates. With the gold price now appearing to have stabilized around the US$1,250oz level, if general equity market sentiment remains positive, we expect mining shares to return to trade above book value.
– While reserves write-downs might have a short-term negative impact on miners’ valuations, we believe miners’ shares are trading at an attractive accumulation level and that valuations will eventually move back to August 2013 levels. Should investors become convinced that miners’ are able to maintain profitability at current lower gold price levels we believe there could be further upside potential.

Source: ETFWorld.it

Commodities Although gold often gains during extreme events, the start of the first US Federal shutdown in seventeen years last week failed to lift the gold price. Investors appear to be looking through the storm and are focused on assets that will either benefit from the continuation of the global growth recovery or are generally uncorrelated with debt risk.  Cotton and sugar gained 2.3% and 1.8% last week, bouncing from lows hit in September, but without strong news driving the trend. Platinum and palladium fell 3.6% and 2.5% respectively. That comes despite a 17% rise in Japanese auto sales (to a 14-month high) and a 12.1% rise in UK car sales (to a five-year high). US car sales also remained brisk, despite the timing of Labor Day distorting the monthly statistics. Autocatalyts are the primary source of demand for the platinum group metals (PGMs). The strike that started two weeks ago was still on-going last week at Amplats, constraining the supply of PGMs.
Equities US equities remain under pressure as the negotiations over raising the US debt ceiling continue. The S&P 500 fell for the second consecutive week as Republicans and Democrats continued to fight over the budget and debt ceiling. European equities have also been sensitive to the political turmoil in the US. The Euro Stoxx 50® Investable Volatility Index, which provides exposure to the forward implied volatility of the Euro Stoxx 50® Index, surged 5% last week, followed by the FTSE® MIB Super Short Strategy Index and the ShortDAX® x2 Index, up 3.5% and 1.4% respectively. Global equities are likely to remain volatile and under pressure as we get closer to the estimated 17 October hard deadline for lifting the debt ceilding.
Currencies Safe haven currencies benefit as US fiscal negotiations drag on. The Japanese Yen (JPY) was the best performing G10 currency last week as investors sold risky assets and paid back JPY loans on growing concern about the lack of progress on US fiscal and debt negotiations.  For similar reasons the Swiss Franc (CHF) and even the Euro (EUR) also rallied against the US dollar last week. The British Pound (GBP) held up, continuing the trend of the past three months. However, towards the end of the week the currency showed some weakness, indicating the rally may be peaking. In our view, the GBP is one of the more overvalued G10 currencies and – despite recent rhetoric – has one of the more dovish central banks. We therefore believe the currency is particularly vulnerable to a sharp drop once growth data stop surprising to the upside.