Gold miners back in focus as price spikes

The rebound of gold miners Pan African Resources (LSE:PAF) and Hochschild Mining (LSE:HOC) continued in the FTSE 250 index today after the price of the precious metal reached a three-month high.

They are up by almost a fifth in the past fortnight, although still significantly below the levels seen earlier this year when bullion set a record high above $5,400 an ounce.

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Gold slumped below $4,000 at one point in July as expectations of tighter monetary policy by the US Federal Reserve and other central banks diminished the appeal of the zero-yielding asset.

However, the benefit of a three-month low for the US dollar index and an intervention by the US government to control longer-term borrowing costs have aided a return above $4,500.

Yesterday’s jump of 4.2% represented the biggest daily rise since March and extended gold’s improvement to about 10% in the space of a fortnight.

The FTSE 100-listed shares of Mexico’s Fresnillo (LSE:FRES) and West Africa-based Endeavour Mining (LSE:EDV) responded with a 7% surge before consolidating those gains in today’s session.

However, South American miner Hochschild Mining this morning added another 15p to 569p to extend its run from 431p at the start of August.

 The shares had been 808p prior to the Middle East war as inflation fears caused by higher energy prices damaged gold’s usual safe-haven appeal.

Pan African Resources, which has operations in South Africa and Australia, rose another 3.9p to 122.3p. This compares with 92p in early August and a peak of 183p in early March. 

The company is due to report annual results on 16 September, while Hochschild is set to post half-year figures next week.

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UBS Global Wealth Management told clients this week that it sees a higher gold price in the months ahead as softer labour market data have reinforced expectations that the Federal Reserve may be able to keep rates unchanged if inflation pressures are contained.

It highlighted the additional support of demand-related factors after noting the recent resumption of inflows to gold exchange-traded funds.

World Gold Council figures also showed that central bank net purchases reached 51 metric tons in June, while in July the People’s Bank of China increased its gold reserves by 20 metric tons in the largest monthly rise since October 2023.

These factors have prompted UBS to retain its year-end forecast of $4,600 an ounce before a rise to $5,200 by next June and $5,400 in September 2027.

It said: “This higher forecast reflects our view that disinflation could become a more prominent market theme next year. A more favourable base effect and other factors could reduce inflationary pressure.

“This would likely support assets that have been pressured by rising rate expectations, including gold. We also expect US economic activity to be at or below trend. If this occurs, it could weigh on the US dollar and support demand for gold.”

The bank said its projections for the longer end of the forecast horizon suggested that pullbacks in the gold price should be viewed as buying opportunities.

It added: “The principal risk to our constructive view is that the Fed raises rates this year. Higher rates could lift real yields, support the US dollar, and weaken investment demand for gold. Under this scenario, gold could test $3,850 an ounce.”