Why has the Northern Star share price tumbled 24% in June

The Northern Star Resources Ltd (ASX: NST) share price continued to tread lower throughout the month of June.

From market close of $8.95 on May 31 to finishing $6.84 on June 30, this represents a decrease of 24%.

Despite the steep drop, this represents yet another month of strong volatility which has impacted the gold miner’s shares since COVID-19.

At market close on Monday, Northern Star shares have since slightly recovered to finish trading 3.67% higher to $7.06.

What’s happened to the Northern Star share price?

A number of macro environmental factors led the Northern Star share price to sink last month.

The move by major central banks to increase interest rates to lower inflation sparked worries about a potential economic downturn. This ultimately had a negative effect on the gold price as investors shifted their money away from the safe-haven metal.

When interest rates rise, government bonds also increase providing a much more attractive option for investors.

Subsequently, the price of the yellow metal declined almost 2% over the period to hover just above US$1,800 per ounce.

However, the biggest fall in the month came on 27 June with Northern Star shares losing more than 12%.

While no announcements were made by the company, a bearish business update by fellow miner, Evolution Mining Ltd (ASX: EVN) caused the dip.

Furthermore, a report stating that consumer confidence plummeted to a 16-month low in the United States exacerbated market fears.

The release came overnight on June 28, with Northern Star shares shedding almost 10% in the following 3 days.

It is worth noting that with consumer spending habits affected due to the macroenvironmental trends, demand for gold will wane.

This is particularly important because jewellery accounts for the largest slice of global gold demand at about 50%. Next up, central bank reserves account for 25%, individuals at 15% and industrial uses at 10%.

If more aggressive interest rates are followed, this will ultimately drive consumers away from discretionary purchases such as gold.

In effect, lower demand for the previous metal leads to lower prices for gold which in turn affects Northern Star earnings.

What do the brokers think?

Late last month, a couple of brokers weighed in on their thoughts regarding the Northern Star share price.

According to ANZ Share Investing, Citi cuts its price target by 4.1% to $11.60 for the gold miner’s shares.

This was then followed by JPMorgan also reducing its rating by 14% to $9 a pop.

Based on today closing’s price, this represents an upside of 64% and 27%, respectively.

Both brokers believe that Northern Star shares are significantly undervalued given the current economic environment

The post Why has the Northern Star share price tumbled 24% in June appeared first on The Motley Fool Australia.

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More reading

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• Why is the Northern Star share price more green than gold on Friday?
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Motley Fool contributor Aaron Teboneras has positions in Northern Star Resources Limited. 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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