Gold mining shares are diverging from a recovering metal price, notes RBC Capital, which surprises the broker as the miners’ business is to produce gold.
As a result, it has upgraded Fresnillo PLC (LON:FRES) to outperform (975p target) and highlights Centamin (LON:CTY), Hochschild (LON:HOC) and Endeavour Mining PLC (LON:EDV) as also having appeal.
“Considering the potential benefits to a portfolio from gold's theoretical positive reaction to a stagflationary environment, we see this mispricing as highly anomalous, especially should that environment develop.
“From a risk-reward perspective, we continue to see substantial upside for the gold equities - with an average 37.5% upside potential to target.
“Even a retracing back to 5-year average we believe that multiples should drive material outperformance from the space, agnostic to any further gold price gains.”
Fresnillo eased 1% to 787p on a bad day for London.