Gold miners could experience a surge in value beyond the first quarter of 2024 as prices for the precious metal have strengthened since the beginning of 2024, according to Jefferies.
Analysts suggests a potential average increase of 14% in target prices for gold miners despite a softer outlook for first quarter results.
“Gold stocks have performed well, but are not baking in this gold price on a sustained basis,” analysts wrote.
The research house’s base case is that the gold price remains at $2,100 per ounce, with an upside potential reaching $2,600 per ounce, deemed “increasingly attainable” by analysts.
Jefferies' new gold price regression model reveals that concerns surrounding fiscal matters and central bank purchases are counteracting high real rates, exerting a positive influence on the gold market.
In March 2024, the average performance of gold equities tracked by Jefferies went up 1.8 times the increase in the price of gold, suggesting some alignment between the movement of gold prices and the performance of gold equities in the short term, Jefferies highlighted.
According to analysts, this trend suggests that while there is short-term market confidence in the current gold price, mining stocks have yet to fully integrate sustained higher gold prices into their valuations. The Net Asset Value (NAV) sensitivity of mining stocks indicates a potential for significant growth, as it averages just above 4.0x.
Despite gold's recent run, the firm views its return as steady rather than exceptional. Their one-year outlook projects an upside range of $2,600 per ounce for gold, while maintaining the base case assumption of $2,100 per ounce for 2024, with slight increases in subsequent years.
“While gold has had a decent run we do not see the return as exceptional,” analysts wrote.
In terms of valuation, Jefferies has revised upward the target prices for gold miners by an average of 14%, primarily driven by multiple expansion in the context of unchanged base case gold pricing.
The firm maintains Buy ratings on various gold miners, including Alamos Gold, B2Gold, Barrick Gold, Calibre Mining, Dundee Precious Metals, Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF), Lundin Gold (TSX:LUG), Newmont, Oceanagold, Trevali Mining, and Wheaton Precious Metals.