Just days after Goldman threw in the towel on its bearish gold call, the gold bulls are crawling out of the woodwork and none has been more vocal than Credit Suisse which moments ago hiked its gold price forecast to $1,500 which the world’s 3rd most systematically risky bank expects the yellow metal will hit in the first quarter of 2017.

According to CS, gold and silver are now its top picks in the metals space: “gold forecast to peak at $1,500/oz in Q1/17: We raise our gold price forecast by 8% in H2/16 to $1,413/oz and 10% in 2017 to $1,450/oz on prolonged macro and political uncertainty following the Brexit vote. We see an extended timeframe for a negative real rate environment in the US and abroad and continued gold buying by central banks and consumers to diversify wealth.Our silver price forecast increases by 12%, to $18.75/oz, in H2/16 and by 15%, to $19.03/oz, in 2017, following gold.”

More details:

Gold shines again, hits our prior peak price six months ahead on Brexit

A gold price of US$1,350/oz was achieved briefly last week. This level was the peak price that we previously expected by 1Q-17. The Brexit result has pulled forward gold prices. Prolonged strength, on prolonged macro uncertainty.

A common argument we hear from gold participants is that gold is currently benefitting from a fear trade on Brexit, and that may indeed be the case. But we think this recent fear trade leads to something more enduring (similar to the 1Q-16 catalyst of China weakness and global implications). We forecast the gold price to increase through 2016 and believe the $1,500/oz mark could be tested by late 2016 or early 2017 as the macro implications of the Brexit vote are clarified, and the 8 November US election weighs on sentiment. Even before the Brexit vote, we saw positive price drivers: a strong chance of additional QE from the Eurozone, a 12-18 month period of negative real rates in the US and continued wealth diversification globally from central banks and consumers given the uncertain macro environment.

We believe the surprise Brexit vote has solidified and intensified macro and political uncertainty and extended the timeframe for a negative real rate environment in the US (ETF buyers), and potentially abroad (bar & coin buyers). The Brexit time-clock could begin in October 2016 and extend to October 2018 when negotiations between Britain and the EU are expected to conclude. In the interim, Scotland and potentially (Northern) Ireland may seek independence referendums in order to remain in the EU. There may also be further votes tabled in other EU nations which will continue to raise the question of the Eurozone’s sustainability.

Gold price forecasts revised upwards

Gold market deficits in 2016 and 2017 drive our higher price forecasts. We increase our investment demand forecasts for 2016 and 2017 to reflect continued strength from ETFs and bar/coin hoarding. Meanwhile, we continue to expect mine supply to decline over the next three years. We forecast the gold price to increase through 2016, averaging $1,475/oz in 4Q-16 and $1,500 in 1Q-17 with a price average of $1,450 in 2017.

Our LT gold price forecast increases to $1,300/oz from $1,200/oz as we incorporate our expectation of long term gold demand from a variety of drivers; including central bank diversification and consumer asset diversification in light of the current global economic outlook.

CS on silver:

Stronger financial asset drivers

The silver price continued its rally and outperformance vs. gold in 2Q-16, up 12% QoQ in absolute terms (2Q-16 average: $16.8/oz), compared to the gold price increase of 6%. Demand for silver has increased, not for physical/industrial uses, but as a precious metal financial asset. We believe there are international capital flows towards safe-haven asset classes due to a higher geopolitical risk premium on other assets, the FOMC’s focus on “global risks”, and a potentially toxic US election weighing on the USD. Against the higher demand we note that there is lower silver mine supply.

Revised silver price forecasts including LT to $20/oz

Based on our multi-factor regression model, we have made upward revisions to our silver price outlook of 6% to 15% throughout our forecast period, primarily reflecting a stronger gold price forecast and lower expectations for mine supply growth. Most significantly, our LT price moves to $20/oz from our previous $17.9/oz.

On supply & demand fundamentals, we forecast the physical market will be in a significant deficit of 114Moz in 2016 and 55Moz in 2017, and return to balance in 2019.

As for gold equities…

Gold equity outperformance to continue, upgrade Alamos and  Yamana to Outperform and IAMGold to Neutral:

We upgrade Alamos to Outperform from Neutral due to its strong project pipeline, favourable FX exposure, balance sheet and exploration opportunities. Yamana is upgraded to Outperform from Neutral as we see it continuing to benefit from gold leverage, with potential for a re-rating through portfolio optimization, execution on debt reduction and exploration success. IAMGold is upgraded to Neutral from  Underperform, as we believe it is turning the corner on operational and financial performance.

Gold top picks

In the gold space, our top pick is Agnico Eagle (AEM) for its strong exploration and project pipeline, favourable growth profile over the next five years, operational consistency and strong balance sheet. AEM trades at 1.44x P/NAV, a slight discount to the large cap average of 1.52x. AEM is on the Credit Suisse Global Focus List.

Eldorado (EGO) is a top pick for its potential P/NAV re-rating with a tighter focus on longer life assets. We note that EGO has delivered against production guidance for the past three years and is a consistent operator. EGO’s current valuation at 0.87x NAV is at a discount to our coverage average of 1.18x.

Detour (DGC) is also a top pick due to its long reserve life (+22 years), strong FCF, scale (+0.5Moz/year) and location in Canada. It trades at 1.11x P/NAV vs. our coverage average at 1.18x and senior gold equities at 1.52x.

Other Outperform-rated stocks are Barrick, Newmont, Yamana and Alamos: We like ABX for its gold leverage and capital allocation strategy, with a minimum IRR threshold targeted. Newmont for its operational consistency and attractive relative valuation vs. ABX and GG. AUY for its gold leverage and potential upside through portfolio optimization, balance sheet deleveraging and exploration opportunities. AGI for its strong project pipeline, favourable FX exposure, balance sheet and exploration opportunities.

Alas, now that the sellside’s attention is once again focused on gold, this only means that the BIS gold and FX trading desk will be extra busy; coupled with Goldman’s and Cramer bullishness on gold, this may be a near-term peak

end.

Day three of the post-Brexit rally continues, and after some initial weakness due to concerns about Chinese currency devaluation, both European stock and US equity futures were trading at session highs, facilitated by yesterday’s stress test results which saw dozens of US banks unleash a tsunami of stock buyback announcement which in turn pushed S&P futures to new post-Brexit highs.

Risk assets saw a modest selloff around the European open following a Reuters report that the PBOC would let the Yuan weaken to 6.8 (down from 6.63) which would mean the currency matching last year’s record decline of 4.5 percent, policy sources said (more on that shortly). The report sent the Yuan tumbling, however,  it was promptly denied by the PBOC which alongside some intervention by the PBOC to restore the offshore yuan to pre-rumor levels, saw all the initial risk-off sentiment fizzle.

Indeed, as Bloomberg says for the 3rd consecutive day, it is all about central bank efforts to contain the fallout from the Brexit decision helped global equities recoup more than half of the $4 trillion of market value wiped out over Friday and Monday. While the FTSE 100 Index and a Bloomberg gauge of global commodities have recovered pretty much all of their losses since the vote, the rebounds have stalled as political upheaval in the U.K. following Prime Minister David Cameron’s resignation prevents the country from entering talks to determine its future relationship with the EU.

Regarding Brexit, some remain cautious: “It would be premature to suggest the recovery in risk sentiment has solid legs,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “Post-Brexit, the expectations of a lower-for-longer yield environment and the U.K. political vacuum until September are providing a sense of calm and they are providing an uplift to risk assets. So risk appetite is reappearing, but only cautiously.”

Others however, are willing to forget it ever happened, especially with central banks there to prop everything higher: “The initial shock over the U.K. voting out of the EU is easing across the world,” Mitsushige Akino, a Tokyo- based executive officer at Ichiyoshi Asset Management, said by phone. “We’ve survived the event-related risk, and investors are beginning to see that the impact on the actual economy is limited. There’s hope for policy measures globally, not just in Japan, so that’s supporting markets”

As a result, the Stoxx Europe 600 Index was higher for a third day in a rally that’s helped it recover about half of its losses since Britain’s EU referendum, while emerging-market equities and the Bloomberg Commodity Index also advanced. Yields on euro-area government bonds rose from near all-time lows. Crude oil slipped after touching $50 a barrel on Wednesday. The sterling corporate bond market reopened, with the first offerings since the U.K. voted to leave the EU.

“Now we’re in the stage where we don’t know where to go forward,” said Peter Dixon, global equities economist at Commerzbank AG in London. “We’ve walked into a huge right hook which nobody saw coming and businesses haven’t had enough time to plan for a Brexit. Now the clock starts ticking and only when companies start saying exactly what their plans are will investors be able to price Brexit properly.”

The Stoxx 600 added 0.2 percent at 11:11 a.m. in London, erasing declines of as much as 0.9 percent. The FTSE 100 advanced 0.4 percent after late Wednesday erasing its post-Brexit losses and returning to its highest level since April. It’s also the last day of trading for a second quarter that’s been complicated in the final week by Britain’s referendum. Futures on the S&P 500 were 0.4 percent higher, after U.S. equities posted their biggest two-day advance in four months.

Federal Reserve Bank of St. Louis President James Bullard is due to speak Thursday in London and may shed light on his unique flipflopping on the Fed’s rate forecast, which he now expects to not change for year. Taiwan’s central bank cut its benchmark rate at a monetary policy review, while Mexico’s is seen raising borrowing costs, according to a Bloomberg survey. Data on initial jobless claims and the Chicago Purchasing Manager Index are scheduled for release Thursday.

Market Wrap

• S&P 500 futures up 0.4% to 2072
• Stoxx 600 up 0.3% to 327
• FTSE 100 up 0.4% to 6385
• DAX up 0.2% to 9634
• German 10Yr yield up 3bps to -0.1%
• Italian 10Yr yield up 3bps to 1.4%
• Spanish 10Yr yield up 2bps to 1.28%
• S&P GSCI Index down 0.4% to 379
• MSCI Asia Pacific up 0.8% to 129
• Nikkei 225 up less than 0.1% to 15576
• Hang Seng up 1.8% to 20794
• Shanghai Composite down less than 0.1% to 2930
• S&P/ASX 200 up 1.8% to 5233
• US 10-yr yield up 1bp to 1.53%
• Dollar Index down 0.11% to 95.66
• WTI Crude futures down 1% to $49.40
• Brent Futures down 0.9% to $50.13
• Gold spot down less than 0.1% to $1,319
• Silver spot up 0.5% to $18.39

Top Global News

• Airport Attack Hits Turkey Tourism Industry When It’s Down: attack on city airport leaves 41 dead, 13 said to be foreign
• Carney Strikes Preemptively With BOE Crisis Communication Blitz: BOE governor to make televised address in London on Thursday
• Soros Says Brexit Has ‘Unleashed’ a Financial-Markets Crisis: George Soros speaks in European Parliament
• Candidates Prep Pitches to Succeed Cameron as U.K. Leader: U.K. Home Secretary Theresa May and former Mayor of London Boris Johnson will make their pitches Thursday to succeed David Cameron as Conservative Party leader
• Gove Joins U.K. Tory Race Saying Johnson Unfit to Be Premier: number of candidates now at least five
• U.K.’s Fox Says No Snap Election If He’s Chosen as Tory Leader: Liam Fox speaks on BBC TV
• Hollande Endorses Clinton Saying Trump Would Hurt EU-U.S. Ties: speaks in interview with Les Echos newspaper
• Trump Campaign Broke Law by Soliciting Foreign Donations, Groups Allege: presumptive Republican presidential nominee reportedly sent a fundraising e- mail to foreign government officials
• Italy to Boost Bank Rescue Fund Atlante by EU4b-EU5b: Repubblica: newspaper cites unidentified people familiar
• Deutsche Bank May Be Top Contributor to Systemic Risk, IMF Says
• BMW Is Said to Team Up With Intel, Mobileye on Self-Driving Cars: senior executives from each company will hold an event on Friday to discuss the driverless-vehicle initiative

Looking at regional markets, Asia stocks traded higher as the post-referendum rebound remained intact and also followed Wall St.’s firm lead where S&P 500 posted its largest 2-day gain in 4-months. Nikkei 225 (+0.1%) is positive although off best levels as a contraction in Industrial Production figures capped gains. The ASX 200 (+1.7%) was lifted amid strength in energy names after WTI rallied above the USD 49/bbl level on a DoE drawdown. Elsewhere, Chinese markets are mixed with the Shanghai Comp (-0.1%) the laggard amid weakness in Telecoms, while the Hang Seng (+1.8%) outperformed ahead of tomorrow’s market holiday. The MSCI Asia Pacific Index climbed 0.8 percent as benchmark stock indexes advanced across most of the region. Gauges in Australia, Hong Kong and Singapore all rallied more than 1 percent. Singapore Exchange Ltd. gained as much as 4 percent after UBS AG raised its stance on the stock to neutral. AU Optronics Corp. climbed more than 6 percent in Taipei, buoyed by an upgrade in Credit Suisse Group AG’s recommendation on the stock. Finally, 10yr JGBs were flat with a lack of demand seen amid the heightened risk-appetite in Asia, while the latest securities transaction figures showed foreign investors rapidly increasing their selling of Japanese bonds in the prior week.

Top Asian News

• Japan’s Industrial Production Drops Much More Than Forecast: Manufacturers left with more stock as shipments also decline
• SoftBank Said to Face U.S. Inquiry Over Alleged Arora Conflicts: U.S. SEC is checking complaints
• Singapore’s UOB Halts London Property Loans After Brexit Vote: DBS, OCBC continue to offer loans, though urge caution
• Hutchison, VimpelCom Said to Plan Italy Disposals to Sway EU: Cos. hoping to win speedy approval for Italian mobile JV
• Headwinds Loom for Hong Kong Land Amid Rising Supply, Few Takers: Land premiums expected to fall faster than housing prices
• Bank of Korea Has Rate ‘Adjustment’ Room, Board Member Says: Hahm says still too early for S. Korea to discuss adopting QE

In Europe, a choppy session has been seen in Europe as equities were initially pressured at the open after source reports stated that the PBoC are willing to let the CNY depreciate to 6.80/USD in 2016. This had been seen by some as contradictory to the recent rhetoric from the central bank, whereby they have suggested they would keep the CNY stable. However, equities went on to recover, with the upside attributed to month-end rebalancing with Goldman Sachs highlighting that equities are likely to be supported. As such, credit markets have been pressured with Bunds hovering around 166.50 albeit off their worst levels of the day, while the German yield curve have also seen some notable bear steepening.

Top European News

• Hutchison, VimpelCom Said to Plan Italy Disposals to Sway EU: cites two people familiar with the EU probe
• AB InBev-SAB Deal Gets Conditional Clearance in South Africa: approval moves $104b deal a step closer to completion
• Hungary’s Richter Buys Swiss Biotech Co. Finox for CHF190m: comments in statement
• Costain Says On Course for FY Result In Line With Expectations: co. says 1H trading has been strong
• UBS’s Murphy and Naylor Leave as Orcel Overhauls Senior Team: Hanning also departs; co-heads take control of divisions

In FX, the offshore yuan touched its lowest level since January after Reuters reported that China’s central bank is prepared to allow the exchange rate to weaken to 6.8 per dollar in 2016 to support the economy. It fell as much as 0.7 percent to 6.7021 immediately after the report, before paring declines to 0.1 percent. The Reuters report cited unidentified government economists and advisers involved in regular policy discussions.

In commodities, crude oil fell 0.8 percent to $49.49 a barrel in New York, after jumping by almost 8 percent over the last two sessions as data showed U.S. stockpiles are declining. Goldman Sachs Group Inc. said the price may slip below its $50 forecast in the second half of 2016 because of a cease-fire between militants and the government in OPEC member Nigeria.  Gold fell 0.2 percent, trimming its post-Brexit surge to 4.8 percent.  Corn in Chicago rose 1.1 percent before the U.S. Department of Agriculture updates its quarterly reserve estimates on Thursday. U.S. corn inventories as of June 1 probably rose to a 28-year high for the date, while soybean stockpiles jumped 33 percent to the most for the second quarter since 2007, according to analysts surveyed by Bloomberg. Wheat supplies probably advanced 31 percent to the highest since 1988 for the date.

Looking at today’s calendar, the highlight looks to be at 4pm BST when Bank of England Governor Carney is due to speak in London to members of the press and finance industry. In terms of data there’s actually a fair bit to get through, especially this morning in Europe. Kicking things off will be Germany where the May retail sales figures will be released. Following that we’ll get the June CPI report in France before we’re back to Germany with this month’s unemployment rate release. The final revision to Q1 GDP in the UK gets released a short time after that (no change to +0.4% qoq expected) before we then get the June CPI estimate for the Euro area (0.0% yoy expected). Over in the US this afternoon we’ll get the latest initial jobless claims print along with the Chicago PMI for June. It’s worth keeping an eye on the latter with tomorrow being the release of the manufacturing ISM.

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Bulletin Headline Summary from RanSquawk and Bloomberg

• Source reports suggesting the PBOC are willing to let the CNY fall to 6.80/USD in 2016 dictate play early European trade, seeing downside in commodity linked currencies and equities
• Elsewhere, equities recovered by mid-morning, with the move attributed to month end rebalancing as we reach the last day of the month and H1
• Highlights today include Canadian GDP, US Weekly Jobless Claims and comments from Fed’s Bullard

* * *

DB’s Jim Reid Concludes the overnight wrap

The risk asset recovery has been impressive with the FTSE 100 last night (+3.58%) closing above its pre ballot box closing levels and +9.87% higher than its lows early Friday morning. To be fair this index has seen dollar earners spike notably higher since the vote more than offsetting the collapse in bank shares. The domestic orientated FTSE 250 is still -7.68% lower since the results but this index was -13.74% at its intraday lows on Monday. The rebound for the Pound continued yesterday as Sterling closed up +0.64% versus the Dollar at 1.3429 although did actually trade above 1.350 for a brief moment during the afternoon. Sterling is now +2.35% higher than it its intraday Monday lows. Meanwhile there were similarly impressive gains across the rest of Europe. The Stoxx 600 closed up +3.09% and so trimmed its post-Brexit loss to -5.73%. It had been as much as -11.12% intraday on Monday. Peripherals also had a good session with the IBEX and FTSE MIB closing +3.45% and +2.21% respectively. The post-Brexit losses for those markets now are -8.78% and -11.24% although that compares to being down as much as -14.69% and -16.41% at the Monday lows. It’s worth noting that a possible bank bailout in Italy came under scrutiny by German Chancellor Merkel yesterday who insisted that Italy needs to stick to the rulebook that was put in place to prevent taxpayer bailouts.

While we’re on banks, after initially being at the forefront of the selloff (the Euro Stoxx Banks index dropped -18.02% on Friday and -6.23% on Monday), the recovery in the last two days – while being positive – has been relatively small by comparison (+2.88% on Tuesday and +2.05% on Wednesday) and so leaving the index a little more than -19% down from its Thursday closing level. With no immediate liquidity or credit events in the sector, this is probably more of a reflection of the move lower in bond yields (to more negative in some cases) which adds to concerns about long-term profit deterioration for the sector.

Elsewhere Wall Street carried on the positive risk tone into the evening with the S&P 500 finishing up +1.70% and so moving back into positive territory YTD. EM currencies were the big winners in the FX space with +2% rallies for currencies in South Africa, Brazil and Colombia. A big rally for Oil (WTI +4.24%) and the wider commodity complex (Gold included) helped, while credit markets were also materially tighter. Indeed the iTraxx Main and Crossover indices were 8bps and 19bps tighter respectively (Main is now just c.10bps wider than pre-Brexit) while in the US CDX IG was 3bps tighter. Look no further than the primary markets in credit for the change in sentiment. Over $20bn of deals priced in the US IG market yesterday which was said to be the biggest volume day since May 17th so it looks like corporates have been given the green light again. The primary market in Euros has been a little more hesitant although Molson Coors did break the Brexit ice with an €800m tranche as part of their wider bumper deal yesterday.

In terms of the actual newsflow yesterday it was unsurprisingly centred on the various snippets coming out of the EU Leaders summit again. The final statement to emerge from the leaders revealed that ‘there is a need to organize the withdrawal of the UK from the EU in an orderly fashion’ and that ‘this should be done as quickly as possible’. So nothing that was particularly new. France President Hollande warned that should the UK want to access the single market then it ‘would have to accept all the rules and all the obligations, especially one which is to financially contribute to the functioning of the single market’. EU Council President Tusk added that ‘there will be no single market a la carte’ while the generally adamant mood was shared by various other European leaders.

The prospect of Scotland potentially staying in the EU appears to be more dividing however. EC President Juncker said that Scotland has ‘won the right to be heard’. However Spanish PM Rajoy said ‘I am radically against it, the treaties are radically against, and I think everyone else is radically against’. Clearly with the situation in Catalonia it’s unsurprising to see Rajoy adopt a fairly hard stance on the matter.
Refreshing our screens this morning the positive tone has continued into Asia again where it looks like most major bourses are going to close the quarter on a positive note. Indeed the Hang Seng (+1.83%) and ASX (+1.81%) are leading the way, with the Nikkei (+0.82%) and Kospi (+0.50%) also up. Markets in China are flat to modestly higher while credit markets are a few basis points tighter. Sterling has weakened a relatively modest -0.17%. There was also a bit of data out of Japan this morning where industrial production declined sharply in May and alot more than expected (-2.3% mom vs. -0.2% expected).
Meanwhile US equity futures are up slightly this morning. In the wake of the Fed’s stress tests yesterday (of which 31 out of 33 banks passed) Morgan Stanley, Citi, JP Morgan, Goldman Sachs and Bank of America all announced that they were to undertake stock buybacks which sent their respective share prices up in extended trading.

Away from that it was actually a relatively busy day for data yesterday. Across the pond personal income rose +0.2% mom in May which was a little less than the +0.3% expected. Personal spending rose +0.4% mom as expected while both readings also received a marginal upward revision to the April numbers. In terms of the inflation data, both the PCE deflator and core readings came in at +0.2% mom as expected for May. That saw the YoY rate for the former dip two-tenths to +0.9%, while the YoY rate for the core has held steady at +1.6%. Elsewhere, pending home sales in May were down a sharp -3.7% mom (vs. -1.1% expected). On the back of yesterday’s data the Atlanta Fed nudged up their Q2 GDPNow forecast to 2.7% (an increase of one-tenth).

Prior to this in Europe the European Commission had released its latest sentiment surveys. The headline economic confidence indicator held in relatively well at 104.4 for June (vs. 104.7 expected) which is down from 104.6 in May. Again however like the US data from Tuesday the survey period was done prior to the Brexit outcome so next month’s reading is the key one. Elsewhere, German CPI for June rose a little less than expected (+0.1% mom vs. +0.2% expected) although that has lifted the YoY rate by two-tenths to +0.3%. In the UK mortgage approvals rose 67.0k in May (vs. 65.3k expected)

Looking at the day ahead, the highlight looks to be at 4pm BST when Bank of England Governor Carney is due to speak in London to members of the press and finance industry. In terms of data there’s actually a fair bit to get through, especially this morning in Europe. Kicking things off will be Germany where the May retail sales figures will be released. Following that we’ll get the June CPI report in France before we’re back to Germany with this month’s unemployment rate release. The final revision to Q1 GDP in the UK gets released a short time after that (no change to +0.4% qoq expected) before we then get the June CPI estimate for the Euro area (0.0% yoy expected). Over in the US this afternoon we’ll get the latest initial jobless claims print along with the Chicago PMI for June. It’s worth keeping an eye on the latter with tomorrow being the release of the manufacturing ISM.