Gold is heading towards A$4,000 and miners are getting cheap: UBS
UBS forecasts gold to reach US$2,800 by end of 2025, driven by macro uncertainty, geopolitical risks, and increased allocations to gold
Source: iStock
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KEY POINTS
- UBS forecasts gold to reach US$2,800 by end of 2025, driven by macro uncertainty, geopolitical risks, and increased allocations to gold
- Gold miners look attractive for FY25, with strong balance sheets, high free cash flow yields, and potential for M&A due to aging assets
- UBS upgrades several gold stocks to Buy, including Northern Star, Genesis Minerals, and SSR Mining, reflecting higher target prices amid bullish gold forecasts
Of all the days UBS could publish a bullish report on gold – it chooses the day where gold prices are dipping and its a sea of red for gold equities.
Gold prices fell 1.0% overnight to a near one-month low of US$2,326 an ounce. This weakness caused a more pronounced selloff for gold miners, with a benchmark like the VanEck Gold Miners ETF down 3.75%. Gold is now down around 5% from the all-time high of US$2,450 it hit on 20 May. Over the same time period, the Gold Miners ETF is down almost 9%.
Nevertheless, UBS says gold is expected to push to US$2,800 an ounce (A$4,000) by the end of 2025, driven by factors such as macro uncertainty, geopolitical risk and increased allocations to gold.
Bullish gold forecasts
"We have made significant changes to our price forecast based off the view that there is a structural shift underway in the market," the analysts said in a note on Wednesday.
"We have seen strong official sector gold purchases and resilient physical demand, effectively creating a level shift higher in gold's trading range. Macro uncertainty and geopolitical risks suggest that the trend in the official sector is likely to continue."
UBS also believes investors are looking to add to their gold exposure and have plenty of room to do so. For perspective, global physically backed gold ETFs have experienced ten consecutive months of outflows through to March 2024.
"The private wealth community and long-term investors have yet to get fully involved – consensus upgrades to add gold or increase gold allocations could be the catalyst for the next legs higher," the analysts said.
Previous | Updated | % Change | |
|---|---|---|---|
2024e | US$2,185 | US$2,365 | 8% |
2025e | US$2,225 | US$2,700 | 21% |
2026e | US$2,075 | US$2,775 | 34% |
2027e | US$2,000 | US$2,600 | 30% |
2028e | US$1,950 | US$2,300 | 18% |
Long-term forecast | US$1,998 | US$2,241 | 12% |
Source: UBS
Why the gold sector offers value
Gold miners look attractive heading into FY25, according to UBS. The stocks under their coverage on average trade at FY25 EV/EBITDA of less than 5, with free cash flow yields of more than 10%.
"Record-high US$ and A$ gold prices, good balance sheets but aging asset bases and a general lack of exploration success indicate there may be more potential M&A ahead as companies look to replenish pipelines and inventory and recycle projects," the report said.
The stocks under UBS coverage received a sweep of target price upgrades. The broker upgraded these stocks to a BUY rating: Northern Star, Genesis Minerals, SSR Mining (from NEUTRAL) and Regis Resources (from SELL).
Source: UBS
SSR Mining received the highest target price revisions as its Marigold, Seabee and Puna projects were viewed to offer significant leverage to higher forecast prices.
