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South African Gold Miners: the Wall Street Favorites

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Exceptional start for South African miners

This year has been exceptional so far for South African gold miners, with stocks soaring since the beginning of the year. The uptrend has been driven by gains in gold prices due to its safe haven bid and weakness in the South African rand. This combination then met with the recent Brexit vote, which further drove gains in gold and weakened the rand compared to the US dollar (USDU)(UUP). To read more about this trend, see How Are South African Gold Miners Placed Post-Brexit?

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For the first half year, Harmony Gold (HMY) gained a staggering 240%. Harmony is much more exposed to South Africa than any of the other miners. Plus, it’s the highest-cost gold producer. While Harmony Gold showed some exaggerated price action, other South African miners have also gained considerably. AngloGold Ashanti (AU) and Sibanye Gold (SBGL) have gained 142% and 121%, respectively. Gold Fields (GFI), on the other hand, rose only 69%.

South African gold miners’ ratings

Among South African gold miners, AngloGold Ashanti is analysts’ favorite. It has the highest percentage of “buy” recommendations at 59%. Harmony and Gold Fields have the lowest percentage of “buy” recommendations, at 36% and 40%, respectively.

Sibanye Gold (SBGL) has “sell” ratings from 7% of analysts. The graph above shows brokers’ recommendations and the percentage of upsides or downsides from the current prices.

Change in ratings and target prices

Harmony Gold’s target price represents a potential downside of 17%. Gold Fields and Sibanye Gold have higher upside potentials of 1.6% and 1%, respectively. Harmony Gold has seen the highest stock price gain in 2016. Due to its increased leverage and higher gold prices, analysts have increased their target price for the stock by 239% since the beginning of the year.

Investors could consider the VanEck Vectors Gold Miners ETF (GDX) and the SPDR Gold Shares (GLD) to get exposure to gold miners and spot gold prices. AngloGold Ashanti forms 4.5% of GDX’s holdings.

In the next part of this series, we’ll look at the key changes in ratings for the above-mentioned miners.

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