Gold-mining stocks are worth a closer look because they have failed to keep pace with a record-setting surge in the metal’s price, according to Citigroup Inc. and RBC Capital Markets.
A precious-metal mining index from the Philadelphia Stock Exchange fell 4.2 percent for the year through Monday as gold surged 33 percent in New York trading. The index’s ratio to the metal also dropped this month to the lowest level since 2008 as gold surpassed $1,900 an ounce for the first time.
The shares have “a lot to gain if the price can be sustained for an extended period,” Alexander Hacking, an analyst for New York-based Citigroup, wrote Monday in a report. He added that any decline in gold may have relatively little effect on the stocks because they haven’t surged.
Hacking raised his rating on Newmont Mining Corp., the largest U.S. gold producer, to “buy” from “hold” because the stock looked unusually cheap after the metal’s surge. He wrote that the shares were trading at 0.6 times net asset value, using current gold prices. He also recommended buying Barrick Gold Corp., the world’s biggest producer.
There’s room for gold stocks to rise as much as 50 percent, Stephen D. Walker, an RBC analyst, wrote Monday. His estimate assumes the metal will change hands for an average of $1,800 an ounce next year.
Producers with the most to gain from investments in new mines are the best choices, Walker wrote. He described them as “compressed springs,” whose cash flow will surge as production increases. Walker singled out Barrick along with Goldcorp Inc., its biggest competitor by market value.
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