Newcrest Market Performance Speaks Volumes About Gold

NOTE: please note that Wednesday 16 August is a public holiday in Brisbane. Our store will be closed but the webshop will remain open as usual.

Last Thursday we wrote of safe haven buying of precious metals in response to the still ongoing North Korean tensions. Today we follow up with recent commentary and discuss what the performance of Australia’s biggest gold miner is telling us. 

Today Newcrest Mining will be releasing its full year financial results. That in itself isn’t all that significant. What is significant however is Newcrest’s stock performance in the preceding trading day. Friday saw ASX : NCM manage a climb of 44c to close at $21.85 marking its highest point in almost four months and, more importantly, a gain in the context of an enormous 1.15% fall in the All Ordinaries index.  

As Australia’s largest gold miner, the fact that Newcrest saw such contrarian success in the market leads to the conclusion that the broader investment community is not only positive on the company but by proxy, positive on the future demand for the product that they produce; an important indicator to observe. 

In fact, gold has now twice broken the $1,290 mark on its continued upward momentum as pictured below.

As is often the case however, it is not just a single indicator that is screaming positively for gold at the moment. The last few days have seen an outpouring of support for gold and to a lesser extent Bitcoin within the financial community and this has been reflected in the price of both assets.

Let’s start with the Founder of Bridgewater Associates, Ray Dalio who recently had the following to say about gold’s prospects at the moment: 

“We can also say that if the above things go badly (global geopolitical matters such as North Korea), it would seem that gold – more than other safe haven assets like the dollar, yen, and treasuries – would benefit, so if you don't have 5-10 per cent of your assets in gold as a hedge, we'd suggest that you re-look at this. Don't let traditional biases, rather than an excellent analysis, stand in the way of you doing this”. 

The fact that these “other” safe haven assets are becoming less palatable to the investor is likely related to central bank induced distortions in these instruments. Just before the weekend, Michael Pento of Pento Portfolio Strategies described in a discussion with Jim Rickards that “we have an international sovereign debt bubble the likes of which we’ve never seen before. For instance, why is the Japanese 10 year bond yielding zero percent?” 

Michael goes on to explain that with global inflation targets around 2%, holders of such debt are experiencing an erosion of capital and, importantly too, significant risk as “Japan’s debt to GDP ratio is now 250% and around the world, debt has increased by 70 trillion dollars since the start of the GFC”. 

In that same exchange, Jim Rickards noted that “for the first time since 1937, the fed is tightening into weakness”. Jim further supports the popularity of gold and Bitcoin that we’ve recently been writing about by saying that “crypto-currencies are a form of money. When you buy Bitcoin for example, it’s a currency exchange. You’re getting rid of dollars and you’re taking on bitcoin”.  To be clear however, Jim supplements this statement by asserting that he personally doesn’t own any digital currency, stating simply “I buy gold. Gold is a form of money”.

We have come a long way it seems in terms of mainstream sentiment since the famous “pet rock” comment, with articles positive for gold now finding somewhat regular homes on the pages of Australian news outlets. This is a point well exemplified by a piece published about 15 hours ago by the Sydney Morning Herald that quoted an ANZ representative saying that there is an expectation for “gold to break through the $US1,300 an ounce mark fairly soon, and then move higher. If you look over the medium to longer term we think gold will continue to appreciate. And certainly, our medium term target is for $US1400 an ounce”.

To wrap up our collection of quotes, let’s cite a report released on Friday where Simona Gambarini of Capital Economics said “gold prices are likely to remain well supported and could even rise above $1,350 per ounce, which hasn’t been breached since the Brexit referendum last year”.

Perhaps this pro-gold zeitgeist is at least partly due to the fact that last week marked the 10 year anniversary of the freezing of three mortgage exposed funds at BNP Paribas on the grounds of liquidity concerns; an unexpected announcement that preceded a 387 point fall in the Dow and the onset of the GFC. Regardless, a diversification into this area is something well worth considering and something that we will be discussing further at the NUU Understanding Money Conference in two weeks. We hope to see you there.