Broker snap: BofA cuts gold forecasts on US policy normalisation

27th Sep 2013 09:26

Randgold Resources and African Barrick Gold remain the top picks of Bank of America Merrill Lynch in the gold sector, but the bank dampened sentiment on the market on Friday by cutting its gold prices sharply for the next two years.BofA has lowered its gold-price forecasts for 2014 and 2015 by 17% to $1,294 an ounce and by 18% to $1,291 an ounce in real terms, respectively.The bank said: "Gold prices have stabilised and they could remain supported as the US reaches the debt ceiling. However, we believe the focus of investors remains firmly on a gradual normalisation of US monetary policy. Hence, our base case anticipates sustained headwinds to gold prices."[...] Given the unfolding rebound of global economic growth, we believe the more cyclical precious metals, including silver, are likely to outperform gold."BofA has made "significant downgrades" to gold-company forecasts as a result, though it did say that it remains bullish on long-term gold prices.The bank said: "Randgold and African Barrick remain our preferred 'buys' in the London gold space. We believe Randgold's lower costs, rising grade profile and strong balance sheet should see shares outperform even in an environment of lower prices. Meanwhile we continue to see upside potential for African Barrick given its depressed valuation, strong balance sheet and self help potential through cost cutting."The broker also chose to cut its rating for Petropavlovsk from 'buy' to 'neutral' due to significant earnings downgrades and the risk now the firm could breach covenants next year.BC