Newcrest charts the ups and downs of the gold market

THERE are several ways of getting exposure to the gold market and one of them is, of course, to buy gold stocks.

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.

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