Is it realistic to expect more from gold shares?

Noah Capital analyst René Hochreiter has a target price of R23.27, nearly 16% above spot, for Pan African Resources. Added to this is the prospect of the firm attracting new shareholders, assuming it is admitted to the London Stock Exchange’s main listings and likely FTSE 250 index inclusion. “This should provide impetus to the stock through F2026,” said BMO Capital Markets analyst Raj Ray. The application for a move from AIM was submitted earlier this month.

DRDGold is less favoured, partly because it is taking the responsible measure to reinvest in its assets. Van Graan said conservative reinvestment may cap some of the potential gains offered by gold’s spot price. Rising costs and “operational challenges” will also be a hazard and may well erode the free cash flow margins of gold companies, “especially during periods when the gold price is range-bound”, he said.

On this score, and in favour of gold shares, is that many larger North American shares have embraced operational conservatism, controlling their worst instincts for boundless optimism and expansion. This was the conclusion of BMO analysts attending the Mining Forum Americas conference in September. The bank described the tone at the conference as “cheerful but surprisingly conservative”.

“Ongoing corporate discipline, capital returns and continuation of a supportive gold price environment could facilitate further equity gains, albeit at a more moderate pace unless gold continues to appreciate,” the bank said.

Of the JSE shares, Harmony Gold perhaps strikes the most delicate line between return and reinvestment. It has demurred on increasing the dividend policy (20% of net free cash), ploughing money into international growth, mainly in Australia. The company’s DNA is mergers & acquisitions. It shouldn’t be lost on investors that high grades at Mponeng west of Johannesburg are heavily driving margin. Mponeng was bought for $300m from AngloGold Ashanti in 2020.

In Harmony’s 2025 financial year ended June, the mine generated R8.84bn in adjusted free cash flow. This is about 80% of the group’s total adjusted free cash flow of R11.1bn, though the latter includes overheads not allocated to Mponeng’s shaft level cash flow generation. In terms of production profit, Mponeng comprised 29.4% of total full year profit.

What of gold’s future? Central bank purchases became a feature of the market after Covid, some of which was de-dollarisation, exchanging formerly predictable US treasuries for a time-honoured safe haven asset.

Geopolitical uncertainty in the form of Russia’s invasion of Ukraine drove some of these purchases, but global distress has become a facet of the market on its own. So high are uncertainties over Europe, the Middle East and US domestic problems that central bank purchases of gold are set to continue, despite the elevated price of the metal.

“Global trade relationships, political shifts and macroeconomic risks remain in flux, making strong convictions on possible outcomes elusive,” said Joni Teves, a metals strategist for Swiss bank UBS. “Our base case is that gold continues to make new highs in the coming quarters”.

A version of this article first appeared in the Financial Mail.