GOLD equities were trading at relatively depressed valuations given current gold prices and could re-rate if these gold prices were maintained according to James Bell, vice-president for global mining research for RBC Capital Markets.
Addressing the Junior Mining Forum at the Investment in Africa Mining Indaba being held in Cape Town, Bell added that present market fundamentals were supportive for gold prices above $1,500/oz, but said: “I do think we need another catalyst to get a move higher from here.”
Such a catalyst could come from a sell-off in the equity markets and Bell commented: “… that is something that we are definitely looking out for”.
Bell added a review of shifts in the gold price since the 1970’s revealed that, while political and military crises may cause short-term movements in the gold price, it was economic and financial crises which were the largest drivers of the gold price
“We are deep, deep into a bull market for equities – this rally started in 2009 and stock markets are at an all-time high right now.
“We think from an RBC perspective that stock markets could have a less good performance from here. We are not calling for a recession in the next 12 months, but we do not think investors should be complacent.
“If there is a correction in equity markets gold prices should do well purely because people see gold as a safe haven and a hedge against risk.”
Bell pointed out the current gold price rally which started in 2016 had already run longer than some previous gold price rallies but he believed it still had “upside from a price perspective”.
He highlighted the difference in the total market capitalisation of the world’s listed gold stocks between now and 2011 when the gold price sat at similar levels. He pointed out that the total market capitalisation of the listed gold sector was more than one trillion dollars in 2011 whereas currently it was just over $400m.
“So, despite the increase in gold prices, the increase in margins and the potential for cash returns from the industry, we have not seen a rerating in the gold equities and that is why we think there is a big opportunity for investors.”
