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The price of gold has climbed 13% the past three months.
David Gray/AFP via Getty Images The market slumps of 2022 drove investors to many havens, including gold. While the price of the precious metal has risen 4% over the past year, that rally didn’t fully extend to gold miners’ stocks.
However, investors can expect that to change in 2023, UBS says. Such a shift would be a welcome change from the pattern that has left long-term investors of gold miners trailing the market.
UBS analyst Cleve Rueckert reiterated Buy ratings on shares of both Barrick Gold ABX +0.72% (ticker: GOLD) and Newmont NEM +1.57% (NEM) on Thursday. He raised his price target on Barrick stock to $24 from $21 and his target on Newmont to $59 from $50.
Gold miners didn’t have as good a 2022 as gold itself, even if they did outperform the broader market. Over the past 12 months, Barrick Gold is up nearly 1%, and Newmont is down 14%, beating the S&P 500 SPX +0.27% ‘s 16.5% decline and a nearly 29% fall for the Nasdaq Composite .
Various factors kept miners from enjoying all of gold’s gains, Rueckert says, such as higher operational costs and questions from analysts—including himself—about the safety of the firms’ dividends. (Both companies have variable dividends linked to factors including gold prices and debt.)
Now, “the market has shifted and we expect upside to the stocks over the next several months,” Rueckert says. His own 2023 per-share earnings estimates for the companies are about 45% above consensus.
That’s partially because UBS itself is bullish on gold prices, even if they fall short of a super-cycle akin to the 2000s.
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Of course, it’s overly simplistic to believe that gold will benefit simply because the Federal Reserve might alter the path of its interest-rate increases. (A pause in rate hikes make high-yielding alternatives like bonds less attractive vis--vis gold). But Joni Teves of UBS says falling yields should still benefit gold as real interest rates peak (real interest rates account for the expected rate of inflation). In addition, any weakness in the dollar would further help gold—which acts as an alternative currency—and higher global demand for the commodity is another possible tailwind.
With this view, gold becomes more attractive. If that thesis play out, investors that buy gold miners’ stocks could benefit if Wall Street earnings estimates are forced higher as a result. The precious metal certainly has been on a tear already, climbing 13% the past three months, compared with the S&P 500’s 11% rally.
Rueckert prefers Barrick, as the company has already updated its long-term cost guidance, leaving fewer surprises for investors.
By contrast, Newmont’s long-term guidance is more than a year out of date. Rueckert says the company’s revised projections—which might arrive when the miner reports results in February—could lead to a higher base-level dividend, but a lower variable portion. That could lower the overall payout and be a near-term overhang for the stock.
Investors might be wary of the miners, given how they’ve lagged behind the broader market longer-term. Over the past five years, the S&P 500 is still up more than 42%, while Barrick and Newmont’s shares are up 28% and 33%, respectively.
But the sectors that dominated the last bull market might not necessarily do so again in the next.
The marathon bull market that began after the Great Recession—broken only briefly by the short-lived pandemic-fueled selloff in 2020—has been so tech-focused that it can be hard to envision other sectors taking the lead. But UBS’s analysis suggests that it could be gold miners’ time to shine.