In a “significant” shift in sentiment in the United States this week, investors appeared to be more interested in gold, according to BMO Capital Markets’ mining analyst Jackie Przybylowski.
The rise in interest was driven by comments from U.S. Federal Reserve Chairman Jerome Powell on the need to accelerate the central bank’s tapering of bond purchases to tackle risks posed by the new Covid variant, Omicron, and manage an already-heated economy, she wrote in a research note to clients.
But the analyst also cautioned that it is unclear whether the shift in sentiment will benefit gold equities.
“The same inflation fears that are driving Fed commentary and buoy the optimism around gold can also cause a drag on gold equities because inflationary pressures risk eroding miners’ profit margins,” the analyst pointed out.
“The commentary from miners has shifted from a warning in July/August of “transitory” inflation to guidance updates and commentary that suggests a more permanent cost pressure,” she noted, pointing to recent updates from Newmont Mining (TSX: NGT; NYSE: NEM) and Kinross Gold (TSX: K; NYSE: KGC) about the need for higher operation expenses and capital expenditure.
Cost inflation has also brought attention back to royalty and streamers, Przybylowski said, with Franco-Nevada (TSX: FNV; NYSE: FNV) generating interest since it has less risk of being impacted from the proposed OECD global minimum tax rate of 15%.
“Franco-Nevada and other firms with a higher proportion of earnings from royalties (versus streams) generally already pay some taxes, and they would be less affected by a minimum tax,” she wrote.
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