What rising inflation could mean for Newcrest (ASX:NCM) shares

Key points

• Newcrest shares have come under pressure amid slipping gold prices
• Goldman Sachs offers bullish forecast on bullion
• Newcrest set to hit production guidance for FY22

Newcrest Mining Ltd (ASX: NCM) shares are edging lower in early afternoon trade, down, 0.31%. 

That beats the broader index today, with the S&P/ASX 200 Index (ASX: XJO) down 0.27% at this same time.

Newcrest shares have been under pressure in recent months, as gold prices slumped from US$1,901 per ounce in early June to US$1,806 today.

That 5% drop in bullion prices has seen the Newcrest share price fall by 21% since 1 June.

But with inflation on the rise across the globe, some top analysts are forecasting a healthy lift for the yellow metal in the year ahead.

What rising inflation could mean for Newcrest shares

Inflation is ticking up almost everywhere.

That’s seen the world’s most influential central bank, the US Federal Reserve, signal that it’s likely to hike interest rates multiple times in 2022.

The Reserve Bank of Australia (RBA) sounded a more dovish tone during the bank’s monthly meeting on Tuesday. However, RBA governor Philip Lowe conceded that inflation was higher than the bank had forecast last year. And that rate rises could be on the cards here as well.

Now rising interest rates tend to work against the price of gold, and hence the Newcrest share price, as bullion doesn’t pay any yield.

But there’s another important side to this coin.

Namely, that gold also serves as a historic haven asset, with investors viewing it as a secure store of value.

So, when inflation begins to nibble away at cash holding – and rising rates see risk assets like crypto and high-flying tech shares, sold off – gold’s appeal as a store of value shines brighter.

Gazing into their crystal ball, Goldman Sachs’ analysts forecast a strong run for bullion in the year ahead.

In the wake of US Fed chair Jerome Powell’s comments detailing slowing global growth coupled with higher inflation, Goldman Sachs upped its 12-month outlook for bullion to US$2,150 (AU$3,025) per ounce from its previous forecast of US$2,000.

If Goldman is right, the 13.5% increase from today’s US$1,806 per ounce would offer some healthy tailwinds for Newcrest shares.

Commenting on the outlook for gold, Bloomberg analyst Mikhail Sprogis added, “This combination of slower growth and higher inflation should generate investment demand for gold, which we consider to be a defensive inflation hedge.”

How has Newcrest been performing?

Newcrest released its second quarter update last Friday.

The company reported solid gold production during the quarter with an all-in sustaining cost (AISC) of US$1,127 per ounce.

Management said the company should increase production in Q3 and is on track to meet guidance for the full 2022 financial year.

If the miner can keep AISC in the US$1,127 per ounce range while increasing production, a lift in the gold price to US$2,050 during the year could help boost Newcrest shares. 

The post What rising inflation could mean for Newcrest (ASX:NCM) shares appeared first on The Motley Fool Australia.

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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 Bruce Jackson.

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