Citi Sees Gold Stocks Undervalued as Bullion Eyes $5,000 by Late 2027

Citi's global commodity analysts are bullish on large-cap gold equities, with Newmont and Agnico Eagle Mines singled out as top choices in the sector. Citi expects gold prices to surge to $5,000 per ounce by the close of 2027, yet the investment bank notes gold stocks currently trade at valuations suggesting gold prices around $500 per ounce lower than present spot levels.

This sizable valuation discrepancy presents an opportunity for gold equities to outperform during periods of stable prices. Citi emphasizes large-cap gold miners are showing robust free cash flow yields even at current gold prices, with expenses remaining controlled while gold prices have risen. Costs are climbing, but at a far slower pace than gold prices, enabling miners to boost margins.

Furthermore, Citi highlights that capital allocation within large-cap gold companies is judicious, with firms striking a balance between reinvestment in operations and returns for shareholders. The bank views returning capital to shareholders as crucial, as dividend yields distinguish mining stocks from holding physical gold and provide downside protection should gold prices fall, akin to the scenario during 2012-2016.

Newmont Corporation (NEM) is highlighted as a top large-cap gold equity by Citi, boasting a free cash flow yield surpassing 6% at current gold prices. Newmont reported second-quarter adjusted earnings of $2.10 per share on revenue of $6.12 billion, slightly below analyst expectations. In contrast, Agnico Eagle Mines (AEM) is another favored large-cap gold stock according to Citi, though its free cash flow yield is slightly lower at approximately 4.5%.

The bank maintains a generally positive outlook on Agnico Eagle's prospects in the current gold price climate and maintains control of cost inflation.