Have We Hit Peak Gold?

After a rough couple of years, gold is off to a nice start to 2016 and the SPDR Gold Trust (ETF) GLD is already up more than 8.8 percent year-to-date.

However, JP Morgan analyst John Bridges is not convinced that gold has broken its long-term downtrend. In a new report, Bridges discusses whether or not the world has already reached “peak gold.”

With fears over the global economy climbing ever higher in recent months, Bridges believes the case for gold as a safe haven is stronger than ever. However, in terms of a significant longer-term price recovery, he is uncertain of the remaining upside at this point.

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In terms of equities, recent outperformers such as Barrick Gold Corporation (USA) ABX will need gold to continue its surge for the market to ignore its nearly $7.7 billion pro-forma net debt. Despite 2016’s outperformance, gold has yet to break above the resistance line in the chart below.

“Gold’s recent price strength could simply be a reversion to the mean trade in a world where commodity prices remain weak or – if gold breaks through the down trend line – the beginning of a gold rush of sorts into this comparative safe haven trade,” Baker explains.

For now, JP Morgan prefers gold stocks with longer-lived assets and lower debt loads, such as Overweight-rated Agnico Eagle Mines Ltd (USA) AEM and Goldcorp Inc. GG.

Disclosure: the author holds no position in the stocks mentioned.