Randgold Resources Ltd., Gold Fields Limited (JSE/NYSE-GFI), Kinross Gold Corporation and other gold stocks rallied as investors looked to hedge against inflation. The U.S. dollar weakened against other currencies after the Federal Reserve lowered interest rates to help encourage economic activity, which led to a rally in many commodities. Prices have also been helped by a fall in mine supply, slowing central bank sales, ongoing de-hedging by producers, firm demand from ETFs, and a likely recovery in jewelry demand.
Many analysts are very bullish on the prospects of gold going forward. Goldman Sachs raised its three-month forecast to $700 an ounce from $690, while also raising its full-year prices to $795 from $710 an ounce. Studies at the bank have shown that gold moves opposite the dollar 90% of the time.
Companies like Randgold Resources, Gold Fields and Kinross Gold could benefit from the rise in prices, which will both increase the value of its current reserves and provide funding for future exploration activity. Higher prices also help increase revenues, drive profits, and improve the balance sheet. Bigger miners like these offer a combination of safety and profitability, as they are well-capitalized and trading at near-record low price to net present value multiples.
