Following last week’s price plunge, Macquarie said gold was not desirable as a commodity or a currency at present, and that further drops in price were possible.
“Eventually though shorts will have to cover, and we stick to our view that some confidence should return to the market post a Fed-hike, though gains are likely to be slower and more moderate than we had previously predicted,” analysts said.
Macquarie now expects gold to average $US1075 per ounce this quarter, down from $1270/oz, and $1125/oz in the December quarter, down from $1310/oz.
Gold in 2016 is expected to average $1163/oz, down from the previous estimate of $1363/oz.
However, a weakening Australian dollar should see gold rise over $A1700/oz in FY17 and FY18.
While Macquarie believes more of the price weakness has been factored into the share prices of Australian miners already, the reduction in its forecasts have translated to significant earnings reductions.
“Earnings fall 30-100% over the next three years for most producers with some stocks swinging into losses,” Macquarie said.
“Price targets fall by 10-20% for most stocks with higher cost producers declining more than 40%.”
Northern Star Resources, Regis Resources and Beadell Resources have been downgraded from outperform to neutral, while Medusa Mining was cut to underperform from neutral.
Given its higher cost production, Kingsgate Consolidated had the biggest reduction in its price target, down by 67% to 20c from 60c.
Evolution Mining and Gold Road Resources had the smallest cuts, with price targets down by 9% and 8% to $1 and 55c respectively.
Macquarie noted the impacts on companies outside the gold sector, with copper miners OZ Minerals and Sandfire Resources also producing gold, while diversified producer Independence Group has a big exposure through its 30% stake in the Tropicana mine.
The reduction in gold price forecasts results in an expected 10-20% drop in earnings in FY16 and FY17 for Independence and OZ, and around a 5% drop for Sandfire.
Macquarie said it continued to prefer gold stocks with exposure to the Australian dollar gold price.
“However, following the four recommendation downgrades our list of preferred names has shortened to Saracen, Doray and Gold Road,” Macquarie said.
“Of the international producers we continue to see value in OceanaGold.”
The Australian dollar spot gold price was back over $1500/oz this morning, giving local miners a big boost.
Gold miners were three of the ASX 200’s best performing stocks this morning, led by Northern Star with a 6% jump to $2.14.
Regis was up 5.1% to $1.35, while Evolution jumped 3.5% to $1.04.
