Gold is at multi-year lows. What does this mean for Northern Star shares?

Gold nuggets with a share price chart.Gold nuggets with a share price chart.

The price of gold has been sliding into the red since peaking at US$2,052 per troy ounce on 8 March 2022 to now trade at US$1,716/t.oz.

Pressure from a strong USD and rising interest rates has seen demand for bullion drop to new lows, reports say.

“[G]old prices remained about 16% off the year to date high as higher interest rates and a relatively strong dollar continued to pressure bullion demand,” Trading Economics wrote.

The opportunity cost of holding gold increases with rising yields as the yellow metal pays no interest/yield.

Meanwhile, shares of key ASX gold player Northern Star Resources Ltd (ASX: NST) have settled higher this week after drifting to 52-week lows of $6.76 on 19 July.

The gold price and Northern Star share a tight relationship in directional movement, as seen on the chart below, displaying both instruments since November 2020.

TradingView Chart

What’s in store for Northern Star shares?

The gold mining giant recently posted its Q4 FY22 earnings and results came in line with expectations.

It sold a total of 1,561 thousand ounces (koz) of gold at an all-in sustaining cost (ASIC) of $1,633/oz, within guided ranges.

Northern Star also provided FY23 guidance in its report. It forecasts gold sales of 1,560-1,680koz gold to be sold on an ASIC of A$1,630-1,690/oz.

Meanwhile, the downward slide in gold doesn’t appear to have impacted the outlook from brokers.

Exactly 100% of analysts covering the company rate it either a buy or strong buy right now, according to Refinitiv Eikon data.

The consensus price target from this extensive list is $10.94, suggesting there is more upside to come if the analysts are correct.

Northern Star has a debt to asset ratio of 5.5% and is expected to increase its capital expenditures in FY23.

It also generated an above-average return on invested capital (ROIC) last half of 19.7% and printed $152 million in company-reported free cash flow. Investors realise a 1.8% yield on this.

Aside from that, Northern Star shares trade at 6.4 times trailing price-to-earnings ratio (P/E) and a 15.7% earnings yield, whilst leaving shareholders a 2.7% trailing dividend yield.

Even still, the market has punished Northern Star these past 12 months. It is now down 25% in that time, or 22% this year to date.

The post Gold is at multi-year lows. What does this mean for Northern Star shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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