Russian gold glitters in face of Ukraine conflict
The geopolitical tensions between Russia and the West over Ukraine are boosting the gold price and benefitting Russian miners, according to Canaccord Genuity today.
The broker has upgraded its recommendations on Russian gold producers Polymetal International and Petropavlovsk to “buy”, as a result of its bullish view on the yellow metal and a weaker currency, due to the regional unrest.
“The 14 per cent ruble depreciation since December improves costs in US dollar terms and drives a six per cent and 17 per cent increase in our net asset value estimates respectively,” said Canaccord.
“The higher gold price estimates make a substantial difference to our free cash flow estimates and ability of management to reduce net debt levels over the next few years,” it added.
Gold is a safehaven metal that investors traditionally buy at times of financial uncertainty. As City A.M. reported last month, research from the World Gold Council showed that overall gold demand slid by 15 per cent last year, due to large-scale outflows from ETFs, as confidence in the US economy improved.
But the battle over Crimea’s sovereignty – coupled with worries surrounding China’s credit market – have triggered a recent pick-up in the gold price and should cause it to rally further in the near term, according to the broker’s research.
“We believe the recent strength in the gold price is the result of a robust physical demand and a pick up in investment demand as indicated by the first significant rise in exchange traded fund (ETF) gold holdings in 15 months,” it added.
Canaccord is revising its estimates across the (gold) board. African Barrick Gold also gets its seal of approval and even Egypt-focused Centamin is a “speculative buy” despite an ongoing legal dispute.
“Our average 2014-2018 gold price assumption rises six per cent to US$1,354 (£814)/oz, and long-term projection rises five per cent to US$1,455/oz,” said Canaccord.
“This drives earnings per share upgrades and an average 25 per cent increase in target prices across our coverage.”