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Jefferies has turned increasingly bullish on gold, citing worsening fiscal conditions in the US and Japan, growing constraints on monetary policy and improving cash generation among gold-mining companies, according to its latest GREED & fear report.
The brokerage said the deteriorating fiscal position of the US, coupled with rising government debt-servicing pressures, is creating a favourable environment for gold. US federal government debt has crossed the USD 40 trillion milestone, while the fiscal deficit for the first ten months of the current financial year has already surpassed the full-year deficit recorded in FY25. Jefferies noted that the US fiscal deficit rose to USD 432 billion in July, the highest monthly deficit since March 2021 and a record for the month of July. The fiscal deficit for October 2025-July 2026 stood at USD 1.799 trillion, compared with USD 1.775 trillion for the entire FY25. The brokerage also pointed to rising Treasury yields and the increasing pressure on the Federal Reserve to avoid raising interest rates because of the implications for government debt servicing. "The above fiscal issues in America and Japan, and the constraints they impose on monetary policy, are clearly bullish for gold," Jefferies said. The brokerage's bullishness is also linked to geopolitical risks. It highlighted the continuing tensions surrounding Iran and the closure of the Strait of Hormuz, while noting that oil and energy stocks remain the best hedge, with gold the second-best hedge. "Meanwhile the price gap between crude oil and refined products, such as diesel, becomes ever wider," the report said, adding that "investors need to own oil and energy stocks as the best hedge, with gold second best." Beyond the macroeconomic case for bullion, Jefferies sees an increasingly attractive investment proposition in gold-mining companies. It said gold miners are generating rising free cash flow at a time when free cash flow trends for the S&P 500 are deteriorating. The Philadelphia Stock Exchange Gold and Silver Index's free cash flow yield rose from a negative 2.01 per cent at the end of June 2023 to 5.07 per cent at the end of July 2026, and currently stands at 3.74 per cent. In contrast, the S&P 500 free cash flow yield has declined from 4.75 per cent in September 2022 to 2.67 per cent. "The spread between the Gold and Silver Index free cash flow yield and the S&P500 free cash flow yield increased from a negative 584bp in October 2023 to a positive 233bp at the end of July and is now 108bp," Jefferies said. Overall, the brokerage's analysis rests on a combination of fiscal deterioration, constrained monetary policy, geopolitical uncertainty and improving fundamentals for gold miners, making both bullion and selected gold-mining equities increasingly attractive in its view. (ANI)
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