Gold equities have re-rated to historical peaks or above. Without diminishing the possibility of more upside if risk aversion continues, we estimate that equities are discounting a gold price that is >20% above spot through perpetuity. Anglogold, Centamin, GoldCorp, Zhaojin are relative global picks
Equity re-rating has driven valuations to levels that are at or above historical peaks. Total shareholder returns for precious metals equities have so far exceeded 169% YTD. This has propelled valuations to levels that are at or above historical peaks for most equities under our coverage universe. While lifting gold prices have driven upgrades to consensus earnings, we maintain more than 50% of the equity performance is explained by multiple re-ratings. Our analysis suggests that the market is paying a 32% premium to what it has historically paid for reserves and resources across our global precious metals coverage.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
