Gold is trading at record levels: These are Macquarie's top ASX gold picks

Gold has hit consecutive all-time highs, surpassing US$2,500 an ounce, driven by anticipation of a Fed rate cut, falling bond yields and ongoing geopolitical tensions.

This rally has prompted Macquarie analysts to revise their gold price forecasts higher, with increases of 2-3% for 2024-26 and a substantial 11% for long-term estimates, resulting in higher valuations for gold miners.

Macquarie's updated gold price forecast is as follows:

• 2024: US$2,339 an ounce (up 3%)

• 2025: US$2,463 (up 2%)

• 2026: US$2,250 (up 2%)

• 2027: US$2,150 (up 8%)

• 2028: US$2,200 (up 5%)

• Long-term: US$2,000 (up 11%)

Source: Macquarie

The modest weakening of the Australian Dollar further benefits ASX-listed companies with US dollar-denominated earnings, boosting their Aussie-denominated share prices.

ASX gold miner outlook

This gold price upgrade significantly impacts earnings forecasts for gold stocks under Macquarie's coverage, particularly for FY29 and beyond. The analysts note that higher-cost producers, with greater commodity price leverage, see more substantial upgrades, while lower-cost producers experience more modest earnings per share (EPS) improvements.

The below table refers to the earnings changes of gold stocks compared to prior forecasts.

Among the large-cap gold stocks, Northern Star Resources stands out with the most significant EPS upgrades, averaging 25% over the next five years. This is attributed to its higher cost base, which provides greater leverage to gold price movements, and its lack of copper exposure.

Evolution Mining sees an 18% EPS improvement over the same period, with copper accounting for about 30% of its revenue. Newmont experiences a 10% average improvement, influenced by its 8% copper exposure and US dollar-denominated earnings, which don't benefit from the same foreign exchange tailwinds as NST and EVN.

Towards the smaller end of town, higher-cost producers see the most substantial EPS improvements. Red 5's five-year average EPS more than doubles, driven by its high costs and significant depreciation and amortisation assumptions following its recent merger. Westgold Resources and Regis Resources show improvements of 56% and 39% respectively, benefiting from their lack of hedging.

Ratings at a glance

Most preferred stocks

Northern Star has emerged as the most preferred large cap pick for its superior growth outlook and capex drop off. The analysts forecast gold production to rise 26% between FY24 and FY27, with meaningful capital spending increasingly in the rear view mirror.

Newmont is the second most preferred large-cap gold stock amid a rapid deleveraging of its balance sheet, towards its target of US$5 billion net debt by the end of 2024. A US$1 billion share buyback is currently underway, with management signally that the buyback could go beyond US1 billion if gold prices remain buoyant.

For smaller-cap producers, Perseus Mining is the top pick due to its strong cash generation (free cash flow yield of 12% in FY25) and development outlook.

Other notable picks include Capricorn Metals, with plans to three-fold its production over the next three years, backed by a well-supported management team.