2016, The Bull Market for “Gold Bugs”
$ABX, $GOLD, $KGC
Y 2016 has turned out to be a strong Bull Market for Gold Bugs that was not expected by most at the end of Y 2015.
YTD we have seen many of the world’s top Gold miner and Gold producer stocks rise 100%, 200% +.
Analysts in the sector did not see QE (quantitative easing) driving gains for Gold.
Last week saw Jefferies raise both its Gold forecast for Y 2016 and for some of the top stocks.
Barrick Gold Corp. (NYSE:ABX), Jefferies has became much more Bullish than the rest of Wall Street firms covering the stock. One of the drivers is that Jefferies has raised its Gold forecast to a near-term peak of 1,400 oz, and it has increased its longer-term forecast for gold to 1,300 from 1,200.
Driving this increased Gold price is an ongoing elevated macro risk.
Jefferies sees this as being very favorable for Barrick Gold, and the firm was also more positive on Randgold Resources Ltd. (NASDAQ:GOLD) and Kinross Gold Corp. (NYSE:KGC).
The firm sees the environment having materially improved and that is even with the possibility of Gold prices remaining at or even modestly below the current mark.
Jefferies believes that the more leveraged miners, such as Barrick and Kinross, should obviously benefit most.
The team said: “In the case of Barrick, the conversion of debt to equity via free cash flow is a clear positive, and this conversion will be accelerated at a gold price of at least $1,300/oz. In the case of Kinross, valuation based on our new gold price forecasts is inexpensive and more than offsets the associated risks (this was not the case assuming $1,200/oz gold). Randgold stands out amongst its UK peers with best in class liquidity, quality operations and a premium valuation we expect to persist as the gold price moves higher into 2H16… the outlook for these three gold mining equities has materially improved. Importantly, our Buy recommendations on Barrick and Randgold do not depend on gold continuing to rise for the long term. A flat price environment should be more than good enough for these shares to perform well.
Additional drivers for the gold market were investment demand and gold being an uncorrelated asset in diversified portfolios. The Jefferies team does acknowledge risks. They feel that gold share prices (gold stocks) will be volatile, but they are telling their clients to own these shares for the long run. The Jefferies report said:
We expect Gold shares to be volatile as investor sentiment swings from risk-on to risk-off. But over a longer term horizon, we expect these shares to perform well, and we would buy them for the long run now. Barrick and Acacia are our top picks in global Gold mining.”
Barrick Gold saw its rating raised to Buy from Hold and its price target raised to $26 from $15 in that call. The new 26 target is 5.50 higher than the consensus analyst target of 20.46. Barrick has a 52-wk trading range of 5.91 – 23.47. It is one of the top miners in the world for gold, with a market cap of $24.5-B.
Randgold Resources (NYSE:GOLD) trades as American depository shares in New York. GOLD has a 52-wk trading range of 54.88 – 126.55. Its market cap is $11-B, and its consensus price target is 118.64.
Kinross Gold (NYSE:KGC) was raised to Hold from Underperform and its price target was raised to 6 from 4. Its 52-wk trading range is 1.31 – 5.82, and its consensus price target is 6.02.