Leading broker just upgraded these ASX gold stocks to “buy”

ASX gold stocks are rising with the market but there’re two that are leading the charge after getting upgraded by Citigroup.

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Rising ASX share price represented by smug investor with gold dollar around neck.

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ASX gold stocks are rising with the market but there’re two that are leading the charge after getting upgraded by Citigroup.

These upgraders are the Northern Star Resources Ltd (ASX: NST) share price and Saracen Mineral Holdings Limited (ASX: SAR) share price.

These stocks jumped 3.1% to $12.57 and 2.8% to $4.72, respectively, in late trade.

ASX gold stocks not shining as brightly

In contrast, the S&P/ASX 200 Index (Index:^AXJO) rallied by around 1% ahead of the market close today.

Other gold miners aren’t faring as well. The Newcrest Mining Ltd (ASX: NCM) share price and Evolution Mining Ltd (ASX: EVN) share price are lagging behind with a 0.2% to 0.5% gain.

Latest ASX gold stocks to be upgraded to buy

The Northern Star share price and Saracen share price outperformance coincided with Citigoup’s decision to upgrade both to “buy” from “neutral”.

What’s interesting is that the upgrades came at the same time Citi was downgrading its gold price forecasts.

Gold price close to peak

“Citi’s commodity team has downgraded its outlook for gold, now calling for ‘peak gold’ in 2021 before unwinding in 2022 based on vaccine news and sharp global growth,” said the broker.

“We update our estimates accordingly seeing material cuts to earnings, NPVs and target prices across our coverage universe.”

The broker expects the price of the precious metal to make a fresh push to above US$1,975 an ounce in the next six to nine months. This should be enough to push the average gold price to new record highs in 2021.

Gold getting hammered by rising risk appetite

However, the party won’t last. Citi is tipping the gold price to fall. Its long-term price assumption is US$1,400 an ounce (adjusted for inflation).

What’s taming the broker’s bullishness towards the safe haven asset are the risks that the US Federal Reserve could turn hawkish as the COVID‐19 recovery unfolds.

The big jump in industrial metals like copper is adding to the view that investors are rotating towards risk assets and away from safe havens.

The recent downtrend in the US dollar is also further evidence that the great rotation is already unfolding, in my view. After all, the greenback is seen as the world’s reserve currency and is in demand when things look dicey.

Merger potential a saving grace

What the NST share price and SAR share price have going for them is their potential merger.

“SAR remains our preference heading into the deal,” added Citi.

“MergeCo should be the second-largest gold producer on the ASX and one of a handful that can deliver meaningful growth over the next couple of years.”

But both stocks aren’t immune from the lower gold price forecasts. Citi’s 12-month price target on the Northern Star share price falls by $2 to $13.90 a share.

The Saracen share price target is also cut to $5.30 from $6.20 a share.

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Motley Fool contributor Brendon Lau owns shares of Evolution Mining Limited and Newcrest Mining Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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