ASX 200 gold shares are rallying. Is the yellow metal set for new all-time highs?

S&P/ASX 200 Index (ASX: XJO) gold shares are charging higher today.

In morning trade on Wednesday, the ASX 200 is up 0.2%.

Not bad. But well behind the 3.3% gain posted by the S&P/ASX All Ordinaries Gold Index (ASX: XGD), which also contains some smaller miners outside of ASX 200 gold shares.

Here’s how some of the biggest gold stocks are tracking at the time of writing:

• Northern Star Resources Ltd (ASX: NST) shares are up 3.5%
• Newcrest Mining Ltd (ASX: NCM) shares are up 2.8%
• Evolution Mining Ltd (ASX: EVN) shares are up 3.1%
• Gold Road Resources Ltd (ASX: GOR) shares are up 4.2%

Here’s what’s driving investors’ interest.

What’s driving investor interest in ASX 200 gold shares?

ASX 200 gold shares are outperforming again today after the gold price edged higher overnight.

Bullion is currently trading for US$2,022 per ounce.

That’s up 11.5% from the US$1,813 per ounce the yellow metal was fetching on 7 March. And the gold price is now up a whopping 24.9% since the recent lows of US$1,629 posted on 3 November.

With gold miners’ costs essentially fixed regardless of the price of the precious metal they dig from the ground, any increase in the gold price tends to go straight to the bottom line.

Should bullion prices remain elevated or even march higher from here, it should offer some healthy tailwinds for the ASX 200 gold shares. And investors might see some bigger dividend payouts ahead alongside any potential uplift in the miners’ profits.

Is the gold price headed for new all-time highs?

The gold price has been marching higher in large part due to the metal’s historic haven status.

Just as gold shot higher following Russia’s invasion of Ukraine, the yellow metal also benefited from investor fears driven by the recent wave of bank failures in the United States and Europe.

Gold, and ASX 200 gold shares, also look to be benefiting from market perceptions that central banks may be nearing the end of their tightening cycle, despite inflation remaining above their target ranges.

A climate of above-average inflation amid softer central bank policies is historically good for gold, which pays no yield itself but is often turned to as an inflation hedge.

At the current US$2,022 per ounce, gold is now just 2.6% below its all-time high of US$2,075, reached on 7 August 2020.

With gold priced in US dollars, experts are particularly focused on the US Federal Reserve, as any easing there is likely to pressure the greenback.

According to Warren Patterson, head of commodities strategy at ING (quoted by The Australian Financial Review):

Fed policy is likely to be key for gold over the medium term. The Fed is likely approaching a peak in the Fed funds rate, and we could see a pivot over the second half of this year. We would expect real yields to follow policy rates lower later in the year, which should prove supportive for gold prices.

Broker Citi sees the gold price heading to new all-time highs over the year. A move that would surely be welcomed by ASX 200 gold shares.

Aakash Doshi, senior commodities strategist at Citi said, “We are structurally bullish gold … into end-2023. It appears the price floor … is now higher and buttressed by an evolving central bank narrative, the compression in real yields at the belly of the US rates curve, and potential US dollar peak.”

Citi’s 12-month price target for the yellow metal is US$2,300 per ounce.

The post ASX 200 gold shares are rallying. Is the yellow metal set for new all-time highs? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX 200 shares today
• Why Aeris Resources, Evolution, Li-S Energy, and Race Oncology shares are charging higher
• 5 things to watch on the ASX 200 on Tuesday
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor Bernd Struben 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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