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Why Is Wall Street More Bullish on South African Gold Miners?

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Jul. 20 2016, Published 12:53 p.m. ET

JPM turns bullish on South African names

Recently J.P. Morgan (JPM) upgraded Harmony Gold (HMY). It upgraded HMY from “neutral” to “overweight.” In the same report, JPM also upgraded Gold Fields (GFI) to “neutral” from “underweight.” It reiterated its “overweight” rating on AngloGold Ashanti (AU) and Sibanye Gold (SBGL). JPM’s upgrades for South African miners come on the back of its bullish view on gold prices combined with weaker South African rand.

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Macquarie and Deutsche

Macquarie also upgraded Harmony Gold to “neutral” from “sell” on July 5. Out of all the South African gold miners, Macquarie has an “outperform” rating only for AngloGold.

In contrast, Deutsche Bank (DB) downgraded AngloGold from “buy” to “hold” while upgraded Harmony Gold from “hold” to “buy.” The upgrade for Harmony came on the back of stock’s high leverage to rand gold prices. For AngloGold, DB believes that the valuation and the risk-to-reward outlook justifies a “hold” rating. DB maintained its “hold” rating for Gold Fields and Sibanye Gold in the same note.

In the aftermath of the Brexit vote, Morgan Stanley also increased its gold price forecasts and consequently the target prices for all the South African gold miners. It, however, maintained its ratings for the miners.

Investors looking to invest in gold might also look at leveraged ETFs such as the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).

One group of precious metal companies has lagged the year-to-date rally in gold and silver prices. We’ll discuss the ratings for this group in detail in the next part of this series.

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