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.
Frequently Asked Questions about this Article…
How can everyday investors get exposure to the gold market?
One common way is to buy gold stocks. The article explains that gold explorers can be volatile because their fortunes depend on exploration results and company circumstances, whereas established gold producers — such as Newcrest Mining — tend to provide a surer, more direct exposure to the gold price.
Does Newcrest Mining act as a hedge against movements in the gold price?
Yes. According to the article, Newcrest’s share price is highly correlated with the gold price and can legitimately be seen as a gold hedge, with both showing similar percentage movements on a semi‑log chart.
How has Newcrest’s share price tracked the gold price this year?
The article notes gold hit US$1,788 an ounce in February, fell to US$1,536 in May and then recovered. Newcrest followed the gold down, reached a low of $20.89 in July, and since then both gold and Newcrest have been in an uptrend showing “higher highs” and “higher lows.”
What technical levels should investors watch for Newcrest share price?
The article highlights a resistance point around $27.40 (in August) that Newcrest later broke and which then acted as support. More recently the stock has found resistance at the $30 mark; if Newcrest breaks through $30, the next technical target mentioned is around $36.
What are Newcrest’s production targets and how did it perform last year?
Newcrest aims to mine between 2.5 million and 3.3 million ounces of gold annually. Last year it fell short of that range, producing 2.28 million ounces, although gold reserves increased slightly to 147.9 million ounces.
Where does Newcrest operate and what metals does it produce?
Newcrest has operations in Australia, Papua New Guinea, Indonesia, Ivory Coast and Fiji. In addition to gold, the company also produces silver and copper.
What recent changes in capital spending and profits were reported for Newcrest?
The article says Newcrest reduced capital spending from $9 billion to $5.5 billion in recent years. Profit was up 23% to $1.1 billion and the dividend yield was reported at 1.2%.
Is there any legal risk affecting Newcrest’s Cadia East project investors should know about?
Yes. 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, according to the article.
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