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Gold analyst bucks bullish sentiment with gloomy prediction

The recent rise in gold prices, which was followed by a sudden drop and an immediate recovery, may herald a downturn in gold and silver prices and mining stocks in the coming months.

In a Sept. 30 contribution on industry monitor Gold Eagle, precious metals investor and analyst Przemyslaw Radomski wrote that the recent sharp decline in gold prices was an indicator of the start of a bigger drop in the sector.

In his note, Radomski likened the current trend in gold prices to a similar scenario that occurred in January 1980 and December 1987, almost eight years apart. Gold's rapid rise in August 2019 was also eight years after the previous boom period that transpired in the same month of 2011.

After gold hitting a year-to-date peak on the London Metal Exchange at US$1,532 per ounce on Sept. 4, spot prices of the precious metal slumped to about US$1,467/oz earlier this week, before recovering to US$1,508/oz on Oct. 3.

"We are not saying that gold will decline for as long as it did in 80s and 90s. In fact, it's more likely that gold's decline will be even sharper than what we saw in the second half of the 90s due to [U.S. dollar's] upcoming powerful rally," Radomski wrote. Acknowledging that his view was bucking the prevalent bullish sentiment for the yellow metal, he dismissed the price upswing in recent months as a "corrective upswing within a bigger downtrend."

On the other hand, analyst Charles Gibson of London-based Edison Investment Research sees an upside for Africa-focused gold miners Pan African Resources PLC and Endeavour Mining Corp., both of which it counts as research clients.

In an Oct. 2 note, it raised its headline absolute valuation on Pan African to 17.89 U.S. cents per share, from 14.05 pence per share.

Edison's projection rises to 24.07 cents per share upon taking into account growth projects and other assets, which includes the value of resources at the Witwatersrand basin of about 19.2 million ounces, potentially ranging from 0.22 cents per share to 5.24 cents per share, depending on prevailing market conditions.

Gibson expects that the South Africa-focused miner will start reaping profits as it will become "strongly cash-generative," as it will begin paying down net debt and simultaneously increase its dividend distributions, which is expected to be in the top third out of 52 precious metals producers expected to pay out dividends over the next 12 months.

For its full year ended June 30, the miner beat its production guidance, returning to positive earnings of US$38 million from a year-ago loss of US$122.8 million.

Meanwhile, Edison Group boosted adjusted net EPS forecasts for Endeavour by 19.0% to 52.7 cents from 44.3 cents previously predicted, following an increase in its gold price projections to US$1,474/oz from US$1,416/oz. Its forecast also accounted for the rainy season impacting processing operations at its Houndé operation in Burkina Faso more than was expected. The higher forecast is also on account of Endeavour's revenue protection strategy, which took effect July 1.

It placed 360,000 ounces of production for the 12 months ending June 30, 2020, under gold option contracts at a minimum of US$1,358/oz, capped at US$1,500/oz.

In September, the West Africa-centered miner reported a 141% jump in indicated resources at the Lafigué deposit of its Fetekro mine in Côte d'Ivoire. Endeavour is targeting the completion of a feasibility study for the Kalana project in Mali in the first quarter of 2020.