RBC Capital Markets’s global gold outlook may be summarised for Spring/Summer 2008  as ‘the pause that refreshes.’ Highlights of investment srategy:  

• The greenback’s role as a reserve currency will continue to decline in importance relative to alternatives such as the Euro and gold
• Central banks’ current aggressive reflationary efforts will place additional pressure on currencies relative to hard commodities in the years to come
• Immediate risks include moderating global inflation expectations, a pause in the greenback’s downward trend and downward inflationary pressures on disposable income
• RBC Capital Markets maintains its long-term bullish outlook for gold.

Turning to emerging markets (EMs), RBC considers the “energy and agflation” problem currently underway across many EMs will have lasting power and inflation could remain a serious issue over the next one to two years. This will necessitate EM central banks to shift monetary policy priorities from growth to inflation. To cope, a mix of policy alternatives are likely to be utilised: greater subsidisation or price and export controls, tighter monetary policy via higher interest rates and/or increasing policymakers’ tolerance of currency appreciation.

Technically the secular bull case for gold remains strong. In recent months, spiraling food and energy prices have stoked traditional inflation concerns, while ongoing deflation in the credit markets has increasingly fueled fears of downstream monetary reflation. 

Bullion appreciated 57% from last June’s low at $642.80 to the recent high at $1017.50. RBC Capital Markets believes there is a strong likelihood that gold is now in the early stages of a multi-month consolidation phase after its big nine-month advance.

RBC Capital Markets profiles Agnico-Eagle as one of the stronger gold names (i.e. those that made new all-time highs in March, and are currently trading well-above their 200-day averages) and Yamana as one of the weaker ones.

Supply fundamentals are expected to remain relatively stable in the near term, with the exception of a moderate decline forecast for global mine production in 2008, as a result of expected curtailment of production from South Africa (due to power constraints). On the demand side of the equation, near-term weakness is expected for jewellery, largely due to the combined impact of a slowdown in global growth, elevated gold price levels and price volatility.

With the views that a seasonal slowdown for gold demand is around the corner in the summer months, and the possibility that the US fed rate cutting cycle may come to an end shortly, RBC Capital Markets believes the timing is right for investors to take profits in the short term in gold and gold equities.

RBC Capital Markets would use a seasonally quiet period in June and July to buy-back or add to existing gold equity positions as it expects a rebound in the gold price in the period of seasonal strength in September-October.

From a fundamental perspective, RBC Capital Markets continues to favou gold companies with improving production and cost profiles, gold reserve upside, active exploration programs and strong management teams. Gold equities that are believed to offer investors a combination of these characteristics include: Kinross Gold, Harmony Gold, Centerra Gold, Jaguar Mining, Central African Gold, Anatolia Minerals and Avoca Resources.