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The evolving gold market dynamics & why Newcrest is in demand

Gold and gold equities are viewed as a safe haven. In 2022, against a backdrop of higher inflation we saw the correlation between gold and global equities become higher than normal, and even rise throughout the year.

Alison Saves | Antipodes


Gold and gold equities are viewed as a safe haven. As a result they typically exhibit a low correlation to global equities which is particularly true during drawdowns - so when markets go down, gold tends to outperform.

However, that’s not what happened in 2022, even with a backdrop of higher inflation. We saw the correlation between gold and global equities become higher than normal, and even rise throughout the year.


Gold was facing two major headwinds. 

  • The strong USD: The dollar’s been strong because the Fed has been running much more hawkish policy compared to other central banks. And given gold is priced in dollars, a strong dollar relative to other currencies has increased the cost of gold.
  • Rising real yields in the US: We actually get paid nothing to hold gold, so if real interest rates rise – that is the risk free return above inflation - the opportunity of cost of holding gold goes up.


But now gold is starting to move 

After a lacklustre performance through most of 2022,  you might have noticed gold is back in the headlines. News over the weekend surrounding Newmont’s interest in Newcrest highlights the renewed activity and interest in the sector.

With the market becoming concerned about the US government hitting its debt ceiling and on reports central banks around the world have stepped up purchases of gold, the gold price has been on the move since late last year. 

At Antipdoes, our house view is that the case for owning gold is indeed strengthening. As is often the case in investment cycles, what were once headwinds for gold, look to be becoming tailwinds.

In the latest episode on our podcast, I discussed our investment team's views and due diligence on the yellow metal with Rameez Sadikot (Portfolio Manager and head of Antipodes Quant, Macro and Currency), and why we think Newcrest offers investors an attractive risk/reward opportunity (note, we recorded this episode just hours before the Newmont bid for Newcrest was announced).



The case for Newcrest (ASX: NCM)

While we outline the strengthening case for gold in some detail on the podcast, the big questions for investors, is how can you play the gold trade?

Australian gold mining giant, Newcrest Mining is a holding in our global portfolios.

Newcrest has taken positive steps to maximise its portfolio by investing in projects like Lihir in Papua New Guinea which is on track to become a 1 million ounce per year mine with world class grades and lower costs, and longer-dated projects including Red Chris and potential expansion at Brucejack.

In total, this should see the company’s production grow 30% over the next five years in volume terms (copper and gold) and drive .

Newcrest’s all in sustaining costs could fall to circa $600 - $800/oz by the middle of the decade, versus an industry average of $1200/oz.

So, even if the gold price remains flat around current levels, Newcrest’s EBITDA can potentially double over the next 5 years - driven by 30% relatively high margin production growth which would see the company priced at 15% free cash flow yield. 

The recent bid from US mining giant Newmont shows we aren’t alone in identifying value in the company.


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All  prices and analysis at 06 February 2023.  This information was produced by Antipodes Partners Limited (ABN 29 602 042 035, AFSL 481 580) (Antipodes). This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.

About the Author
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