Citi Sees Gold Hit US$2,125, Calls Fresnillo Plc ‘Best’ Precious Metals Leverage

Fresnillo could turn around around the same time gold hits record highs, according to Citi.

Citigroup analysts expect gold to hit a new all-time high of up to US$2,125 an ounce in the coming months as financial markets grapple with soaring headline inflation, geopolitical uncertainty and the extreme risks of recession.

Moreover, the bank’s analysts believe that the exclusion of Russians from the physical London gold market, Swiss refining centers and the Comex exchange could reduce the availability of bullion stocks.

Meanwhile, Citi said it also sees the price of silver rising to US$29.50 an ounce.

On the London Stock Exchange, the bank sees Fresnillo PLC (LSE:FRES) as having the best leverage on gold and silver prices – and pointed to the upside potential for the company.

“The investment case for Fresnillo could turn around in the next 6-12 months after three years of falling volumes and rising costs. Silver production volumes are expected to increase in 2022 as mined grades stabilize at the existing operation, while visibility on additional volumes from the Juanicipio and Pyrites mills improves for the second half of 2022. Citi said in a note.

“With the stock price down 20% year-to-date, the stock price is the worst cost dynamic to play in 2022. However, the sequential cost progression in 2H’ 21 was flat, while the company guided market-driven inflation in 2022.

Citi added: “Additionally, Fresnillo should benefit from additional investor interest following the suspension of Russian gold stocks from the FTSE 100.”

Fresnillo is classified as a ‘buy’ with a price target of £11.00.

On Wednesday afternoon, the price of gold was down 2.8% at US$1,994 an ounce while silver was down 1.1% at US$26.06 an ounce.

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