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RBC says generalists yet to flock to gold; Bernstein bullish on battery metals

Generalist funds have yet to jump into the gold sector despite a pickup in the price of the precious metal, RBC Capital Markets analysts noted in a March 12 research brief.

"We think the conversation around gold has changed somewhat, helped by the run in prices from the fourth quarter of last year," they said. "However, we don't see this as having increased allocations to gold or the equities yet."

The operative word may be "yet." The RBC team noted that investors, getting ahead of the generalist funds, might profit should the funds invest more heavily in the sector.

The analysts took what they called a "constructive" view of gold and gold equities, making the case that gold fundamentals were strong and that miners could benefit.

"With not just uncertainty, but rather quantifiable volatility emerging in a number of markets, we think gold exposure is increasingly attractive," the team wrote.

RBC Capital Markets pointed to Fresnillo PLC as a top pick among the miners it covers that are listed in Europe, the Middle East and Africa, noting the recent exit from the EMEA region by Randgold Resources Ltd. which combined with Barrick Gold Corp. at the start of the year.

Battery metals

Drilling down into miners and metals that may come out as winners amid growing demand for electric vehicles, Bernstein analysts took a bullish stance overall in a recent report.

"We see miners as the perfect way to play the EV theme," the analysts said March 14.

First, miners give exposure to the EV sector without having to pay a premium, the analysts said.

"The miners discount the failure, rather than the success, of the upcoming EV transition!" the analysts wrote. "Hence, owning the miners can act as a hedge against a slower EV adoption rate than is discounted in valuations elsewhere in the EV value chain, while offering prodigious upside should a more rapid adoption scenario manifest itself."

Second, in choosing mining equities, the analysts said investors do not have to make decisions about which part of the EV sector to back.

"Whether it is battery makers or automakers, Chinese original equipment manufacturers, or Western incumbents that will emerge victorious, everyone will still need cobalt, copper and nickel," they wrote.

Cobalt, copper and nickel stand as the Bernstein analysts' preferred metals that may benefit from increasing demand in the years to come should adoption of EVs pick up steam as many expect. Of note, the analysts said existing reserves of nickel, cobalt and copper are insufficient to meet both EV and non-EV demand as projected under various scenarios.

"We see most upside in the cobalt price (+173%), nickel (+73%) and copper (+27%), but remain skeptical about the long-term performance of lithium," the analysts said.