More gold investors think cost inflation has peaked | Trading Desk ...

Investors are growing more bearish on the prospects for gold, as a recent survey by J.P. Morgan points out only 44% of respondents think bullion will move higher in the next 12 months.

That level marks a sharp decline from 71% last year, but investors are still bullish for the long term, with 60% of them anticipating gold will rise in the next three years.

Analyst John Bridges pointed out gold fund managers are more optimistic about gold equities than gold for the 36-month period. Yet generalists and resource funds expect gold stocks to underperform or perform in line with the metal.

Perhaps the most noteworthy result from the survey of 91 funds was the attitude towards inflation, as 53% of respondents said they think operating cost inflation has peaked and 57% believe the same for capital cost inflation. That?s a sharp increase from 35% and 32%, respectively, in the previous survey.

?If costs are truly under control perhaps investors should be more aggressive with winners being greedy when others are fearful,? Mr. Bridges told clients, noting that while the majority still expect inflation to drive gold higher, the percentage expecting deflation has increased to 22%.

?Some expect that inflation will only come to lift gold after a period of deflation,? he added.

While 78% of investors continue to anticipate an inflationary environment, 22% of them think deflation is possible, up from 15% a year earlier.

Mr. Bridges is confident there will be opportunities for both investors and miners to buy quality assets during this downturn, but stressed timing will be key.

He expects companies such as Agnico Eagle Mines Ltd., Coeur d?Alene Mines Corp. and Hecla Mining Co. will act counter-cyclically?to buy stakes in assets, or buy them outright, in this depressed market.

As for the method of these acquisitions, investors reduced their preference for cash as a mode for M&A, which Mr. Bridges attributes to the desire to preserve much-needed liquidity in this down cycle. He noted more investors now prefer a mix of cash and stock, which balances liquidity needs with equity dilution.

Source: http://business.financialpost.com/2013/06/19/more-gold-investors-think-cost-inflation-has-peaked/

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