Gold sector ‘in its best shape in years' heading into 2026

Core Viewpoint - Gold equities are projected to remain highly attractive within the mining sector in 2026, supported by strong valuations, balance sheets, and free cash flow generation, despite expectations for price consolidation [1][2]. Industry Outlook - Analysts maintain a bullish stance on gold equities for 2026 due to appealing valuations, while being neutral on gold prices [2]. - Structural drivers supporting gold's strength in 2025, such as de-dollarization, US fiscal concerns, macroeconomic uncertainty, central bank buying, and physical demand through ETFs, are expected to persist into 2026 [2]. Price Expectations - Jefferies anticipates gold prices will remain rangebound in 2026, with a potential period of consolidation, which is viewed positively for the sector [3][4]. - Real interest rates are identified as a significant factor influencing gold prices, particularly with potential changes in US monetary policy [3]. Sector Health - The gold mining sector is characterized by strong balance sheets, disciplined cost control, and increasing shareholder returns, with nine out of twelve covered gold miners in net cash positions [5]. - Cost inflation has remained below 5%, and real all-in costs are under US$2,400 per ounce, contributing to a healthy sector outlook [5]. Future Expectations - Jefferies expects favorable conditions to continue into 2026, with some upward pressure on labor and consumables anticipated, though still below 10% [6]. - Higher gold prices are expected to influence reserve calculations, potentially extending mine lives without significantly impacting near-term margins [7]. M&A Activity - Sustained high gold prices and growing cash balances may shift investor focus towards growth, setting the stage for increased merger and acquisition activity as financial discipline gives way to strategic expansion [8]. Top Gold Picks - Barrick Gold Corp. is identified as the top pick among large-cap miners, expected to deliver the highest free cash flow yield in 2026 at approximately 12% [9][10]. - Alamos Gold Inc. is viewed as a catch-up opportunity among mid-caps, with potential for re-rating driven by improved performance and expansion studies [10]. - Royal Gold, Inc. is highlighted for its unjustified valuation discount, with expectations for improved market sentiment due to medium-term growth clarity [11]. Other Metals - Jefferies has become more cautious on copper equities due to valuations, despite maintaining a positive outlook on copper prices [12].