Citi Sees Gold Stocks Undervalued as Bullion Eyes $5,000
Citi projects gold will hit $5,000 an ounce by late 2027 and argues major gold mining stocks are currently undervalued, presenting an investment
Citi's global commodity team maintains a bullish outlook on large-cap gold equities. The investment bank projects the price of gold will reach $5,000 per ounce by the end of 2027, while noting that gold equities currently trade at valuations that imply a gold price roughly $500 per ounce below current spot levels.
According to Citi, this valuation gap creates an opportunity for the stocks to outperform, even during periods of stable metal prices. The bank emphasizes that large-cap gold miners are showing strong free cash flow yields at current spot gold prices, with cost inflation remaining under control even as gold prices have risen. While costs are increasing, they are doing so at a much slower rate than the rise in gold prices. This dynamic allows miners to expand their profit margins.
Capital allocation among these major companies is also seen as sensible. Firms are balancing reinvestment in their operations with returning capital to shareholders. Citi views returning capital to shareholders as critical. Dividend yields differentiate mining stocks from holding physical gold and can provide downside protection if gold prices fall, similar to the market behavior seen between 2012 and 2016.
Citi's Top Stock Picks
Citi analysts highlighted Newmont Corporation (NEM) and Agnico Eagle Mines (AEM) as top picks in the large-cap gold equity sector. The bank provided estimates for their spot free cash flow yields.
| Company | Ticker | Spot Free Cash Flow Yield |
|---|---|---|
| Newmont Corporation | NEM | ~6% |
| Agnico Eagle Mines | AEM | ~4.5% |
Newmont is noted for offering a free cash flow yield exceeding 6% at current spot gold prices. Citi calculates this yield at approximately 6%, positioning it as an attractive option for investors seeking both gold price exposure and income. The company recently reported second-quarter adjusted earnings of $2.10 per share on revenue of $6.12 billion, which fell short of analyst expectations. Following those results, Raymond James raised its price target on Newmont while Argus lowered its target.
Agnico Eagle Mines is identified as another preferred stock, though with a slightly lower estimated spot free cash flow yield of about 4.5%. Citi maintains a broadly positive view on the company's ability to benefit from the current gold price environment and controlled cost inflation. Agnico Eagle recently announced second-quarter results that narrowly missed earnings and revenue estimates. However, the company produced a record quarterly free cash flow of over $1.3 billion.
This analysis from Citi was reported by Investing.com. The source article was generated with AI support and reviewed by an editor.
