Market Report: Bulls ignore broker's warning on Randgold

Randgold Resources fought off the bears as gold prices rose once again last night, with the stock firming up despite warnings that the market may be overlooking the downside.

The gold producer has enjoyed a strong run in recent months and is up about 30 per cent since the beginning of March. The last couple of weeks have been particularly good as investors, seeking refuge from southern Europe's debt woes and the threat of inflation as analysts highlighted the possibility of the ECB resorting to quantitative easing to buy government bonds, piled into gold. A rising appetite for the yellow metal, which is regarded as a relatively safe investment in times of economic stress and is widely seen as a hedge against inflation, boosted Randgold, which is up nearly 10 per cent since the beginning of this month.

Not everyone is feeling bullish, though. Evolution Securities outlined a decidedly bearish view in a note to clients yesterday, arguing that Randgold's valuation left little room for the operating and development risks faced by the group. "Randgold... has suffered from delays and cost overruns which have been forgiven because of the company's extremely successful exploration programme," the broker said. "However, the market needs to take account of how much it costs to extract and sell the gold.

"Even though we like gold in view of the potentially systemic financial problems around the world, the extreme valuation that we have for Randgold... forces us to reiterate our sell recommendation," Evolution added, recommending that investors switch into other producers such as "the considerably lower-cost" Centamin Egypt, which was 0.5p stronger at 156.5p last night. At the close, Randgold was up 110p at 6,175p.

Overall, the FTSE 100 was 50.28 points higher at 5,433.73, while the FTSE 250 rose by 99 points to 10,285.96 as traders welcomed a round of positive company updates. Encouraging results from the likes of BT, the telecoms group which soared to 133.6p, up 10.8 per cent or 13.1p, 3i, the private equity giant which was 20.5p higher at 288.7p, and Sainsbury's, which rose to 338.5p, up 10.5p, lifted the mood across the benchmark index.

Mining stocks also did well, with the Eurasian Natural Resources Corporation adding 42p to 1,137p after issuing an update on production. The updates offset some uninspiring figures on the UK's trade gap, which unexpectedly widened in March. "Thus far, all the weakening in sterling has brought is inflation and we are still holding our breath for the long-awaited boost to growth," Alan Clarke, UK economist at BNP Paribas, said.

Elsewhere in the mining sector, Xstrata was 39p higher at 1,096.5p against the backdrop of reports on the possibility of a merger with Glencore, the Swiss commodities trader which owns around 35 per cent of the group. A top 10 shareholder was quoted as saying that a deal was only likely to come about if Glencore "gave themselves very cheaply to Xstrata", something which the shareholder considered unlikely. The shareholder was also reported to have said that it was very difficult to value Glencore, which is not listed.

Antofagasta gained 11.5p to 957p, despite Evolution repeating its "sell" view, citing the possibility of weakness in the copper market in coming months. Pointing to the fact that the copper price had already come off its highs, the broker said the miner's exposure to the metal "means that its share price can be expected to perform similarly".

The banking sector was mixed after the French lender Credit Agricole missed quarterly forecasts. Early in the session, traders were also rattled by rumours that Dubai was having further trouble with its debt. The chatter soon faded, however, as reports indicated that bond-holders had received repayment on a $980m Islamic bond issued by the indebted Dubai World's Nakheel unit.

At the close, Standard Chartered, and HSBC were behind, losing 11.5p to 1,691.5p and 1.6p to 665.1p respectively. Lloyds, Royal Bank of Scotland and Barclays, on the other hand, managed to avoid any losses, adding 1p to 60.55p, 0.8p to 49.16p and 0.2p to 329p respectively.

Further afield, Qinetiq was in focus after UBS abandoned its "sell" stance, telling clients that while short-term risks remained on the horizon, the market was being more realistic about the challenges faced by the defence group. "Whilst the Qinetiq share price has suffered recently with the rest of the market, we believe the... performance also reflects expectations coming down and a wider acknowledgement of the material challenges facing the company," the broker said, adding that it expected the chief executive, Leo Quinn, to detail some plan for the company's future at the time of the full-year results later this month.

That said, UBS did warn that "Mr Quinn may also have some limitations, as without the results of a UK strategic defence review, he may not be able to give a firm view" on how to position the EMEA (Europe, Middle East and Africa) division. The broker went on to switch its view on the stock, which was 1.3p higher at 129.2p, to "neutral".