Goldman Sachs upgrades Randgold and Fresnillo

Goldman said in a note that it has lifted its gold price forecast for the second half of this year by 10% to $1,300 an ounce and for 2017/18 by 20% to $1,250 an ounce.

The bank’s commodities team argued that with the UK leaving the EU, there could be a 2% cut to the UK’s GDP and a 50 basis points cut to EU-area growth.

“Lower growth would likely see US rate expectations decline and gold outperform. Further, they argue that the uncertainty created by the vote, and the potential threat of contagion, will make commodities (including gold) trade away from their fundamentals. As a risk asset gold is likely to be supported by this.”

The bank lifted Randgold Resources to ‘buy’ from ‘neutral’ and upgraded the price target to 9,000p from 6,500p saying it is the highest quality stock in its coverage in terms of cash return on capital invested and all-in sustaining costs.

“We have increased our target multiple to reflect likely increased interest in the stock post Brexit and the scarcity premium that RRS should command as one of only two precious metals-exposed stocks in FTSE 100.”

Goldman upped Fresnillo to ‘neutral’ from ‘sell’ with an increased price target of 1,200p from 750p as it grows more positive on the outlook for gold and silver prices post Brexit.

“While the issues at the Fresnillo mine (the grade at the mine has continued to disappoint over the last couple of years) remain, we believe that the uncertainty caused by Brexit will see precious metals (gold/silver) becoming increasingly favoured commodities for investors. We believe investors will be willing to look past short-term issues when looking for such exposure.”

At 1445 BST, Randgold shares were up 11% to 8,160p while Fresnillo was up 8.5% to 1,504p.