Gold bug bites central banks: Is it time to buy Northern Star shares?

Northern Star Resources Ltd (ASX: NST) shares are up 1.8% in late morning trade on Tuesday.

Shares in the S&P/ASX 200 Index (ASX: XJO) gold stock closed on Thursday trading for $13.18. Shares are currently swapping hands for $13.42 apiece.

While Northern Star shares trade at a premium to most of its ASX 200 peers, the gold miner retained its full-year guidance when it released its half-year results on 20 February.

That guidance includes total full-year gold sales of 1,560 to 1,680 ounces at an all in sustaining cost of $1,630 to $1,690 per ounce.

With gold currently fetching US$1,991 (AU$2,995) per ounce, that’s a healthy profit margin.

And with 2022’s voracious central bank appetite for bullion looking to continue in 2023, those margins might get even more attractive.

Why are central banks hoarding gold?

Northern Star shares are in focus following reports that The People’s Bank of China increased its gold reserves by another 18 tonnes in March. That’s the fifth consecutive month of gold purchases by the central bank.

According to Bloomberg, that brings the PBoC’s total bullion holdings to some 2,068 tonnes, having added 102 tonnes from November through February.

Central bank purchases of the classic haven asset have been spurred by the global resurgence of inflation alongside intense geopolitical uncertainty.

The World Gold Council reported that in 2022 “demand for gold was propelled by hefty central bank-buying and persistently strong retail investment”.

The Council noted:

Annual central bank demand more than doubled to 1,136t in 2022, up from 450t the year before and to a new 55-year record high. Purchases in Q4 2022 alone reached 417t, bringing the total for the second half of 2022 to more than 800t.

China’s central bank isn’t the only one continuing with the buying spree in 2023, with Turkey and Kazakhstan also adding to their gold hoards.

This trend should offer some healthy tailwinds for the gold price and Northern Star shares in the months ahead.

According to Saxo Capital Markets strategist, Jessica Amir:

In August 2023, Australian reporting season kicks off, and we think Australian gold companies’ financial results will likely show considerably higher margins (profits) and also higher dividends, in comparison to the same time last year’s results.

eToro market analyst Josh Gilbert also sounded a bullish note on gold and Northern Star shares.

“The outlook for gold topping a new high looks positive, with strong central bank and investor demand,” Gilbert said.

“The bounce back of gold prices in 2023 also improves the outlook for local miners such as Newcrest Mining Ltd (ASX: NCM) and Northern Star,” he added. “Higher gold prices mean profits should rise, likely leading to improved dividends for investors.”

Northern Star shares snapshot

As you can see in the chart below, Northern Star shares have been a major beneficiary of the rising gold price. The ASX 200 gold miner has gained 23% so far in 2023 and is up a whopping 64% over the past six months.

The post Gold bug bites central banks: Is it time to buy Northern Star shares? appeared first on The Motley Fool Australia.

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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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