Why AngloGold Ashanti Rallied Today

Key Points

• Geopolitical tensions and a higher likelihood of rate cuts pushed gold higher this week.

• One Wall Street analyst lifted his price target on the stock.

• 10 stocks we like better than AngloGold Ashanti Plc ›

Shares of gold miner AngloGold Ashanti (NYSE: AU) rallied 4.4% on Wednesday as of 2:06 p.m. ET. The gold mining stock got a lift as gold prices increased slightly toward the record highs reached briefly yesterday, while a Wall Street sell-side analyst increased his price target by a hefty amount.

Gold rises, and Wall Street boosts Ashanti's price target

One can think of AngloGold and its mining peers as leveraged plays on the price of gold. Gold, which tends to gain when inflation increases and/or geopolitical tensions rise, has taken off this year for a number of reasons. These include prospects for Federal Reserve interest rate cuts and geopolitical tensions arising after the disruptive tariff war kicked off on April 2, "Liberation Day."

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This week has had no shortage of geopolitical tensions, including Israel's strike on Hamas leadership in Qatar, as well as the interception of Russian drones over the airspace of Poland -- a NATO member. Additionally, this week's Bureau of Labor Statistics' downward revision of jobs growth over the 12 months ended in March likely increased the odds of a Federal Reserve rate cut this month, which could be inflationary. Gold hit a record high yesterday before retreating later in the day. However, the price of gold was on the move higher again today, albeit slightly.

So, while most gold miners were up today, AngloGold was especially buoyant as it received a price target increase from $56 to $73 from analysts at RBC Capital, relative to the $64.90 price as of this writing.

Image source: Getty Images.

Ashanti is a cash machine amid higher gold prices

As of today, Ashanti now trades at 17 times earnings, which doesn't appear to be that expensive, despite its massive 179% year-to-date run.

However, investors should be aware that the main determining factor here is the price of gold, which is up 41.5% on the year. Gold mining stocks tend to move in multiples of the price of gold, as their costs are fixed.

So, when the price of gold goes up, pretty much all of that revenue falls to the bottom line. However, the reverse is also true; if the price of gold were to fall, AngloGold's profits would fall by a greater amount, and its stock price likely would, too.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.