Gold Prices Keep Rising. Buy Mining Stocks, Citi Says.

The price of gold is up 14% over the past month, boosting profits for gold miners. (Photograph by Dado Galdieri/Bloomberg)

Key Points

• Gold prices increased 0.9% to over $4,200 per troy ounce, marking a 14% rise in the last month and 59% this year.
• Citi analysts reiterated Buy ratings for Agnico Eagle Mines and Newmont, raising price targets to $198 and $104, respectively.
• Gold-mining stocks like Agnico Eagle Mines and Newmont have more than doubled this year.

As long as the price of gold keeps going up, so will gold-mining stocks, analysts at Citi say. And make no mistake, the gold rally remains alive and well.

Bullion rose 0.9% to more than $4,200 per troy ounce on Wednesday. The price is up 14% over the last month and 59% this year, and sits just off the recent record high of $4,235.80 per ounce.

Mining stocks like Agnico Eagle Mines and Newmont have risen at an even faster clip—both have more than doubled this year—but their valuations continue to lag behind the value of the metals they produce, Citi said in a research note this week. The firm reiterated Buy ratings for both stocks and boosted its price targets to $198 from $140 for Agnico and to $104 from $74 for Newmont.

Agnico ticked up 1.6% to $174.00 on Wednesday, while Newmont rose 1.9% to $92.24. Newmont was a Barron’s stock pick in August.

Citi expects production to remain steady from quarter to quarter at both miners. While rising costs are a risk, Agnico is arguably the highest-quality name in the gold-mining industry and a cost-cutting effort at Newmont is expected to improve its profits, the bank said.

The price of gold is the real factor to watch here, though. “Valuation analysis feels somewhat moot as the equities will keep going up as long as the gold price does,” wrote Citi’s Alexander Hacking.

The bank isn’t certain how long gold prices will continue to rise, but it doesn’t believe the market has hit a peak either.

“How high can prices go? We are reluctant to call a ceiling,” wrote Citi commodities analyst Maximilian Layton in a research note last month. “Prices have completely disconnected from marginal production costs.”

Write to Nate Wolf at nate.wolf@barrons.com