Barlow’s Research Roundup: Scotiabank’s conviction on the gold price is wavering

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

East coast opportunity

RBC Capital Markets analyst Jimmy Shan identified a seemingly major real estate investment opportunity on the east coast,

“The government’s new NATO target to get to 5 per cent of GDP in defence spending over the next decade (implying $122-billion of annual spending) has catalyzed a series of significant projects … While the two most significant projects in investment dollars and duration are the River-Class Destroyer program by Irving Shipbuilding and the Submarine Project, there is a healthy list of projects, including infrastructure projects that support those two programs. With 20 per cent of Canada’s military infrastructure located in Nova Scotia, the province stands to benefit from this spending. KMP has 33-per-cent exposure to Nova Scotia (59 per cent to Atlantic Canada). PRV has 27-per-cent exposure to Nova Scotia (40 per cent to Atlantic Canada) … We are still in the early stages of seeing the significant ramp in related job growth though there are sufficient anecdotes to suggest that the ramp is underway. For example, the Halifax Partnership CEO indicated two defence-related companies are coming from the UK, and in July, Lockheed Martin announced the addition of 320 highly skilled jobs to its current work force of 505 in Dartmouth. Moreover, beyond defence, two large logistics companies (Amazon and ID Logistics) will/ have established fulfillment centres in Halifax, further enhancing job growth. Bottom line - our view: 1) It appears that we are still in the early stages of the defence build out; 2) The small size of the Atlantic Canada markets relative to the significant size of committed investments suggests that the impact should be meaningful and sustainable over a long period of time given duration of the commitments; 3) Short duration lease assets such as rental housing and small-bay industrial should feel the impact of the defence investment cycle more immediately”

Ag rally ahead

BofA Securities head of global research Candace Browning Platt highlighted a potential rally in the agriculture sector (my emphasis),

“An agricultural bull cycle is emerging, driven by global conflicts, Black Sea disruption, elevated energy and fertilizer costs, adverse weather, and tightening inventories. The USDA cut the 2026/27 corn stock-to-use ratio [stocks left over after annual consumption] to 9.7 per cent - the lowest since 2021/22 and below the 10-per-cent threshold historically separating balanced markets from rallies. BofA Global Commodity Research expects 8-9 per cent, supporting new-crop prices of $5.50-$6.00 per bushel. China could provide another catalyst: it holds approximately 60 per cent of global corn stocks, but inventories fell about 35 million tonnes in the last two seasons. Stabilization could require 15 million tonnes, triple USDA’s forecast. Black Sea wheat exports are at a decade low, potentially lifting wheat to $8-$10. Europe’s grain output could fall 10 per cent and sugar-beet production more than 20 per cent, supporting record corn imports and sugar near 20¢/lb. In the last two months, speculators have swung from net short to record net long, positioning for further upward momentum”

Gold price re-tests support

Scotiabank strategist Hugo Ste-Marie’s conviction on the gold price is wavering,

“Gold is down roughly 3 per cent overnight, trading near US$4,150. As shown in the upper Chart of the Day, bullion appears poised to retest US$4,000, a level that provided solid support over the summer. Markets are pricing an aggressive tightening cycle. Fed funds futures imply a full percentage point of tightening over the next 12 months, while the U.S. 2-year yield of 4.92 per cent suggests nearly five hikes over the next two years. The U.S. dollar has strengthened accordingly, with the Dollar Index rising above 101 from roughly 98.5 in early September. We remain overweight gold and precious metals, but our conviction is being tested. Although we doubt the Fed will deliver that many hikes, gold is now trading well below the average 12-month sell-side forecast, raising the risk of sharper earnings and cash-flow downgrades. A break below US$4,000 would further weaken the technical outlook”

Bluesky post of the day

Diversion

“Harvard Scientists Detect Radio Signal Coming Directly From Planet Outside the Solar System” - Futurism