Broker snap: Nomura downgrades Polymetal, Centamin

16th Oct 2013 10:53

- Polymetal, Centamin cut from 'buy' to 'neutral'- African Barrick remains top pick- Nomura positive on gold prices over next few monthsNomura said it has been 'somewhat perplexed' by gold's recent weakness during the US government shutdown, but said it was positive on the outlook for gold prices until the end of the year.Nevertheless, the broker has downgraded its ratings for gold mining peers Polymetal and Centamin after both stocks reached its target prices. "However should gold prices find support again, we would expect these companies, along with Randgold and our top pick African Barrick Gold (ABG) to outperform," Nomura said.Polymetal and Centamin have been cut from 'buy' to 'neutral' with unchanged target prices of 590p and 45p, respectively. ABG has held on to its 'buy' rating and 250p target price, while the target for Randgold ('neutral') was raised from 4,370p to 4,600p. Meanwhile, the target for Petropavlovsk ('reduce') has been lifted from 55p to 70p."Following the decision by the Federal Reserve to not taper its quantitative easing programmes last month and our fundamental analysis suggesting increasing support from supply/demand perspective in H2, gold's 8% decline since the start of September is difficult to reconcile."Nomura said that after looking at historical crises, gold does in fact not tend to perform particularly well heading into potential disruptions. "This suggests to us that gold's safe-haven nature is more noticeable in retrospect, and that prices react to policy decisions or policy responses, not to growing risk fears. An eventual deal in the US Congress (our base case) that defers the debt ceiling debate is likely to put pressure on the Fed's decision to taper quantitative easing, potentially promising some impetus for gold."Overall, Nomura said that the second-half supply-demand balance remains skewed to the upside. It said that it needs to see a 13% increase in fourth-quarter average gold prices (from current levels to $1,435 an ounce) for its supply-demand model to balance. The tail-risk potential from a US default - which it sees as a low-probability outcome - or extended spending/quantitative easing "augments our constructive view on gold prices over the next few months".BC