TD thinks gold outlook is good !! SIC is in sweet spot ? We see several factors supporting the rotation towards gold. The first is the slowing strength in U.S. economic data as measured by the Citigroup Economic Surprise Index (Exhibit 1). Typically, slowing economic momentum and/or negative index levels (the index briefly turned negative last week) leads to strength in gold over copper, as gold acts as a safe haven. Following the strength we have seen in copper and the global economy over the past year, the gold to copper ratio for both the
commodities and the equities is near a low (Exhibit 2). However, we are beginning to see this trend reverse and we believe that if economic data continues to slow, this would further support gold over copper (we removed our only copper producer last month). Gold, which is closing in on its best
month (+7.4% this month) since July 2020, has erased all of its 2021 losses, as bond yields have pushed lower since their March peak. With inflation levels elevated, the combination of lower 10-year bond yields and elevated inflation expectations have lowered real rates, as we show in Exhibit 4 through higher iShares TIPS Bond ETF (TIP-US) prices. Speculative trading is also beginning to favour gold versus copper (exhibits 5 and 6), as we have seen a slight pick- up in the speculative net long position for gold and a decline for copper futures.
The recovery in gold prices through April and May has led the closest contract back above the 12-month forward consensus estimate (US1,898/oz versus US $1,801/oz). We believe that this will lead to an improving rate of change (i.e. less negative) for gold price assumptions and potentially upward revisions if gold