ASX 200 gold stock Perseus Mining Ltd (ASX: PRU) has shown strength in 2024 and is up more than 39% this year.
With the gold price rally still in situ in September, analysts remain bullish on the gold mining company, whose assets span across West Africa.
At the time of writing, Perseus shares are swapping hands at $2.55 apiece.
UBS is the latest broker that is bullish on the stock, initiating coverage with a buy rating. Let's take a closer look.
Why UBS is bullish on this ASX 200 gold stock
Perseus is a small-cap gold mining company with operations across West Africa. Its assets are located in Ghana, Sissingue and Cote d'Ivoire.
This week, UBS started coverage on the ASX gold stock, initiating it with a buy rating and a $3 price target.
This implies a potential 17% upside from its current share price, not including any prospective dividends.
The broker highlights the miner's operations, expected to produce around 500,000 ounces annually.
It expects Perseus to produce this level at an all-in sustaining cost (AISC) of $US1,600 an ounce for the rest of the decade. According to The Australian Financial Review:
In a sector that has struggled to generate returns while growing, despite gold trading at all-time highs, Perseus continues to do both from its portfolio.
UBS also visited the ASX 200 gold stock's main site in Cote d'Ivoire, which added to its conviction.
Gold prices to soar?
Underneath the broker's thesis is the gold price. Gold has been on a tear this year, climbing more than 20% to over US$2,500 per troy ounce.
In a separate note, UBS outlaid its bullish stance on gold, forecasting prices to hit US$2,800 an ounce by 2026.
We also think gold represents an interesting opportunity and have lifted our stance on the asset to most preferred.
Concerns about geopolitical polarisation, inflation, the US fiscal deficit, and Fed independence could all help gold prices.
In our base case, we forecast gold prices rising to USD 2,600/oz by the end of the year and USD 2,700/oz by mid-2025, driven by political uncertainty and by continued central bank buying.
UBS believes Perseus is well-positioned to capitalise on the anticipated gold price rally.
According to Goldman Sachs, the precious metal is poised to hit US$2,700 by early next year.
Goldman strategists emphasise that gold is the preferred commodity in the current "softer cyclical environment".
It highlights central bank purchases as a key driver, with gold-buying activity tripling since the start of the conflict in Europe in 2022.
This trend is expected to continue amid concerns over financial sanctions and rising sovereign debt – especially if the US were to impose any new sanctions.
The prospect of Fed rate cuts also makes gold more attractive, the broker says.
Higher interest rates tend to make gold, which doesn't offer a yield, less attractive to investors. Rate cuts by the Fed will likely bring Western investors back into the gold market after largely being absent during the metal's sharp rally over the past two years.
Just like UBS, it too sees gold as its "preferred" strategy:
Gold is our strategists' preferred near-term long (the commodity they most expect to go up in the short term), and it's also their preferred hedge against geopolitical and financial risks.
ASX 200 gold stock takeaway
UBS is backing this ASX gold stock and rates it a buy with its initiating coverage. With gold prices poised to increase, it may be worth a closer look.
Perseus shares are up 47% in the past year.
