The column has been cautiously optimistic on gold. I outlined a positive view for The Bull last year, nominating Newcrest Mining, Silver Lake Resources, Northern Star Resources and the ETF Securities gold exchange-traded commodity (ETC) for exposure to gold bullion in US dollars.

Newcrest has rallied from $11.50 in March 2014 to $13.80, Silver Lake has tanked from 68 cents to 18 cents, and Northern Star has soared from about $1.10 to $2.40.

The ETFS Gold ETC is up from $135 to $146, having hit a 52-week peak of $159, in part because of a falling Australian dollar. The column’s view last year that gold equities looked badly oversold in 2014, has been vindicated by a 27 per cent total return in the S&P/All Ordinaries gold index over one year.

However, I could not claim to have been a gold bull or to have pushed that idea strongly. Although it’s still too early to get overly bullish on gold, its prospects are improving.

Independence Group’s acquisition of Sirius Resources in May is an excellent vote of confidence in the gold sector’s medium-term outlook. Key players such as Evolution Mining are also acquiring assets or making strategic investments in junior gold explorers.

Gold Road Resources is another perennial takeover candidate. The $280-million gold explorer owns tenements covering over 5,000 square kilometres of the Yamarna greenstone belt in Western Australia.

After peaking at 76 cents in April 2011, Gold Road Resources tumbled to 4.5 cents in July 2014 at the height of the gold-sector rout. It has since rallied to 46 cents after promising resource upgrades and as more confidence returns to the gold sector.

Chart 1: Gold Road Resources

Source: ASX

Gold Road last week announced a 44 per cent upgrade to its 2014 maiden mineral JORC resource at the Gruyere project to 5.51 million ounces of gold -ahead of market expectations. The discovery accounted for 1.33 million extra ounces and Gold Road shares leapt 10 cents on the news.

An average grade of 1.24 grams per tonne is relatively modest, but a favourable strip ratio and good grade continuity suggest Gruyere is a strong project.

Macquarie Equities wrote in a research note: “Independence Group’s bid for Sirius would appear to have removed some of the takeover tension in Gold Road’s stock price. However, we believe Gruyere’s attraction as a target will only increase with further work. Exploration is and will remain a key catalyst for Gold Road and in our view (the) resource upgrade both underlines the stgelopment potential of Gruyere and highlights the exploration potential of the Yamarna belt.”

I’m always loath to buy stocks for takeover potential. Always focus on the fundamentals and treat any takeover as the cream rather than the cake. Nevertheless, Australia’s gold sector needs consolidation and Gold Road looks like one of the more interesting potential targets as Gruyere becomes a larger resource.

Independence Group reportedly acquired a stake of more than 5 per cent in Gold Road in May. Gruyere is close to Independence’s flagship Tropicana mine in WA and news of the strategic stake drove Gold Road sharply higher. It seems an obvious fit for Independence Group in the next 12 months.

Macquarie has an outperform recommendation for Gold Road and a 12-month target share price of 60 cents. It has modelled a 10-year mine life at a throughput of 8 million tonnes per annum, for annual gold production of 275,000 ounces at an all-in sustaining cost (AISC) of A$950 an ounce.

 That would give a decent profit at a A$1,500 gold price and there is good potential for further resource upgrades. Gold Road this week sought to raise $39.3 million at 44 cents a share in an institutional placement to help fund feasibility studies, further exploration and perhaps keep predators at bay through a large fund raising.  A pre-feasibility study is expected to be completed in the second half of this year.

Gold Road clearly has good momentum as the outlook for gold bullion improves. British commodities researcher Metals Focus said in late March that 2015 was likely to mark the end of the bear cycle for gold.

Nobody is predicting a fast recovery: a rising US dollar and absence of inflation are headwinds for US$ gold and modest gains over the next few years are likely. But there’s enough to suggest speculators could make handy gains this year and next as sector consolidation quickens.

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Tony Featherstone is a former managing editor of BRW and Shares magazines. This column does not imply any stock recommendations or offer financial advice. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at June 3, 2015.