LONDON (SHARECAST) - With gold prices jumping after the announcement of further quantitative easing (QE) from the Federal Reserve last night, Nomura has maintained its 'bullish' view on the sector.
"Following yesterday's Federal Open Market Committee (FOMC) announcement of a new open-ended QE programme, gold prices have reached as high as $1,775/oz. Gold equities, which remain historically cheap on a price-to-earnings and price-to-net present value basis, should continue recent outperformance," the broker said on Friday morning.
Nomura says that its base-case scenarios for the gold market didn't actually include substantial new QE measures. The broker said that the flow through into the demand categories should drive: continued strong investment demand into 2015; emerging market central bank FX reserve diversification into gold; inflation in countries that peg to the US dollar (such as China), "increasing the propensity to consume gold".
"Where to look for alpha?"
Petropavlovsk (rated 'buy' with a price target of 735p) has been trading at suppressed levels after disappointing figures, the broker said. However, its said that high debt burden should be significantly alleviated through high cash flows.
Nomura is "very positive" on Polymetal (rated 'buy' with a price target of 1,340p), which is also highly exposed to silver. The broker highlights the group's capex programme and the potential to start paying "substantial dividends".
African Barrick Gold (rated 'buy' with a price target of 670p) may be a higher-cost producer but provides leverage to higher gold prices with cost inflation now contained, Nomura said. "We would also expect that a higher gold price would see the tension surrounding a bid increase."
Higher prices should reduce pressure on Avocet Mining's (rated 'neutral' with a price target of 120p) balance sheet and mitigate the impact of the remaining gold hedge, the broker said.
Nomura thinks that Centamin (rated 'buy' with a price target of 130p) should see incremental investors interest as its Sukari project remains one of the top assets outside the majors.
However, the broker said it sees better value elsewhere than Randgold Resources (rated 'reduce' with a price target of 6,815p).