Gold prices top US$2,400: Which ASX gold miner has the biggest upside?

Gold crossed the US$2,400 an ounce level for the first time since late-May after an unexpected fall in US inflation bolstered the likelihood the Fed cutting rates in September.

The price of spot gold rose 1.8% overnight to US$2,415 an ounce, putting it within an arms reach of the all time high set on 20 May of US$2,449.89.

Gold one-year price chart (Source: TradingView)

The rally comes on the back of a cooler-than-expected US inflation report which highlighted several encouraging disinflation trends across the economy. Here are some of the key numbers you should know:

• Core inflation rose 3.3% in June, below consensus expectations of 3.4%

• Headline inflation rose 3.0% year-on-year vs. consensus 3.1%

• Gasoline price index fell 3.8% month-on-month in June

• Shelter price index rose 0.3% month-on-month, the slowest pace in three years

The June CPI report delivered very good news ... long-awaited relief in rent and shelter inflation ... should significantly boost Fed confidence that their optimistic inflation forecast is back on track. We now expect the Fed to ease in September, with quarterly cuts thereafter –JPMorgan

The market's expectation of a September rate cut jumped to 99.2% from 76.7% a day ago and from 59% a month ago, according to CME's Fedwatch tool.

Gold stocks soar

Most mid-to-large cap gold names opened 2-5% higher on Friday.

Resolute Mining and De Grey are currently leading to charge, up 5.3% and 4.3% respectively.

A few stocks including Resolute, Perseus Mining, Newmont and Genesis Minerals hit a fresh multi-year, if not all-time highs.

As for broker consensus target prices, De Grey, West African Resources and Regis Resources carry the most upside.

Data as at Thursday, 11 July 2024 close | Target price' is an aggregate of broker target prices from Refinitiv

The case for De Grey

De Grey's Hemi Gold Project is one of the largest gold assets in the Pilbara region of WA. Earlier this week, the company announced a scoping study for regional deposits near the project, which provide the optionality to boost production by a further 140,000 ounces of gold per annum for six years.

This could lift the company's production profile to a peak of around 700,000 ounces per annum. To add some perspective, the $3.7 billion market cap Perseus Mining is targeting 235,000-247,000 ounces in FY24.

In May, De Grey completed a $600 million capital raise back in May to support the development of its Hemi Gold Project.

"Completion of the equity funding for Hemi is a key de-risking event, in our view, and allows early works spending and satisfies typical debt pre-conditions," Macquarie analysts said in a note dated 10 May.

The project is scheduled to come online in 2027, with a production profile of around 400koz, ramping up to approximately 500koz between 2028-35.

"We expect more consolidation in the gold sector to replenish inventories (as mines age), diversify risk and improve portfolio quality and optionality. These themes only make De Grey's growing inventory more appealing in our view," says UBS.

Thinking about African miners

West African Resources and Resolute Mining are two Africa-based miners operating out of Burkina Faso, Mali and Senegal. The two gold miners tend to trade at a substantial discount to peers due to the perceived risks associated with the region. But both stocks have rallied over 40% year-to-date, well above that of peers like Northern Star and Evolution.

I wrote about this outperformance earlier this week – In short, gold prices are running hot and the incoming cash flows from these companies have become increasingly difficult for investors to overlook.