THERE are several ways of getting exposure to the gold market and one of them is, of course, to buy gold stocks.
Sometimes people erroneously believe a direct relationship with gold can be created through investing in gold explorers. But they can bounce all over the place, depending on their business circumstances and the gold price.
A surer way is to buy into gold producers and, in Australia, the most prominent of these is Newcrest Mining.
As this week's chart by the Victorian president of the Australian Technical Analysts Association, Paul Ash, shows, Newcrest's share price is highly enough correlated to the gold price that it can legitimately be seen as a gold hedge. The chart shows both gold and Newcrest on a scale known as a semi-log on the Y axis that depicts the percentage movements of both.
Gold hit a high of $US1788 ($1722) an ounce in February, then dipped to a low point of $US1536 in May. It stumbled along for a month or so, then began to climb and is now testing the year's earlier highs.
Newcrest predictably followed the gold price down, but at the bottom of the cycle it was lagging a little, reaching a nadir of $20.89 in July. Since then, both Newcrest and the gold price have been in an uptrend defined by "higher highs" and "higher lows" in their prices. That makes the chart look strong.
Newcrest hit a resistance point around $27.40 in August, which defeated the stock for a while. But it broke back through it in September and, later that month, the resistance turned into a support line when the stock fell towards it but bounced upwards again.
From a technical analysis viewpoint, Newcrest should continue to rise, especially while the gold price does, Mr Ash says. However, the stock has recently found resistance at the $30 mark. If it breaks through this level, the next target could be $36, he says.
Newcrest has operations in Australia, Papua New Guinea, Indonesia, Ivory Coast and Fiji. Along with the yellow metal, it produces silver and copper.
Its capital spending has been reduced considerably from $9 billion to $5.5 billion in recent years, and its stated aim is to mine between 2.5 million and 3.3 million ounces annually. Last year's result fell below that target with 2.28 million ounces mined, although gold reserves increased slightly to 147.9 million ounces.
Profit last year was up 23 per cent to $1.1 billion and the dividend yield was 1.2 per cent.
A private company involving businessmen Leigh Clifford and Mark Carnegie has lodged a legal claim aimed at stopping Newcrest from developing a key part of its $2 billion Cadia East mine in New South Wales.
This column is not investment advice. rodmyr@gmail.com
Frequently Asked Questions about this Article…
How can everyday investors get exposure to the gold market?
The article explains several ways, including buying physical gold and buying gold stocks. It notes gold explorers can be volatile because their fortunes depend on exploration success, while gold producers—like Newcrest Mining—tend to provide a more direct hedge against the gold price.
Is Newcrest Mining stock a good hedge for gold prices?
According to the article, Newcrest's share price is highly correlated with the gold price and can legitimately be seen as a gold hedge. The chart discussed uses a semi-log scale to show percentage movements of both gold and Newcrest, and their recent uptrends have tracked closely.
How have gold price movements recently affected Newcrest's share price?
The article says gold hit a high of about US$1,788 (noted as $1,722) in February and dipped to US$1,536 in May. Newcrest followed the gold fall, bottoming at $20.89 in July, and since then both gold and Newcrest have been in an uptrend with higher highs and higher lows.
What technical price levels should investors watch for Newcrest stock?
The article highlights a resistance around $27.40 in August that was later broken and became support in September. Newcrest has more recently found resistance at the $30 mark; the next upside target mentioned is around $36 if it breaks through $30.
Where does Newcrest operate and which metals does it produce?
The article states Newcrest has operations in Australia, Papua New Guinea, Indonesia, Ivory Coast and Fiji. Besides gold, it also produces silver and copper.
What are Newcrest's recent production, reserves and capital‑spending figures?
The article reports Newcrest reduced capital spending from $9 billion to $5.5 billion, aims to mine between 2.5 million and 3.3 million ounces annually, but mined 2.28 million ounces last year. Gold reserves increased slightly to 147.9 million ounces.
How did Newcrest perform financially last year and what was its dividend yield?
Per the article, profit was up 23% to $1.1 billion and the dividend yield was 1.2% last year.
Is there any legal challenge affecting Newcrest's Cadia East project?
Yes. The article says a private company involving businessmen Leigh Clifford and Mark Carnegie has lodged a legal claim aimed at stopping Newcrest from developing a key part of its $2 billion Cadia East mine in New South Wales.
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