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Newmont Mining: All-Time Highs Signal Bullish Moves For Shares...And Gold

By Andy HechtStock MarketsApr 12, 2022 20:14
Newmont Mining: All-Time Highs Signal Bullish Moves For Shares...And Gold
By Andy Hecht   |  Apr 12, 2022 20:14
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  • Gold made a marginal new high in March
  • Gold corrected while NEM shares kept rising
  • NEM sending a signal for gold
  • Mining stocks are leveraged instruments
  • The bull market in gold and NEM looks set to continue

Samuel Langhorne Clemens, known more popularly as Mark Twain, the author of such iconic American classics as The Adventures of Tom Sawyer and Adventures of Huckleberry Finn, was an American writer, humorist, entrepreneur, publisher, and lecturer who lived from 1835 to 1910. Clemens was also one of the thousands of men who moved to California and Nevada during the height of the US gold rush to make their fortunes.

Ultimately, he may not have found much gold, but his written account of his experiences under the Mark Twain pen name was priceless as were his observations about how shady the gold mining business was in those days. His most famous quote on the subject:

A (gold) mine is a hole in the ground with a liar standing next to it.” 

Over a century later, unsavory practices within the industry still surface from time to time; for example, the Bre-X gold mining scandal, which occurred in 1997. Bre-X “salted” crushed ore into its gold, causing one of the most significant stock market scandals in Canadian history.

But though Gold mining may have a checkered past, Denver, Colorado-based Newmont Corporation (NYSE:NEM) is the real deal, a top-tier gold miner. In 2021, the corporation produced around 5.9 million ounces of the precious metal.

Gold made a marginal new high in March

During March 2022, as geopolitical concerns peaked and inflation rose to the highest level in over four decades, gold prices moved to a price that surpassed the August 2020 peak.

Gold Quarterly 1984-2022
Gold Quarterly 1984-2022

Source: CQG

The quarterly COMEX gold futures chart dating back to the mid-1970s shows gold rose to $2078.80 per ounce in March, eclipsing the August 2020 $2063 high. Gold’s rally began in 1999 when the price established a bottom at $252.50 per ounce. Over nearly twenty three years, gold has made higher lows and higher highs.

The August 2020 high at $2063 led to a correction and consolidation period where gold digested the rally above the $2000 level. For much of 2021, the precious metal traded on either side of $1800 per ounce. On Apr. 12, at the $1955 level, gold was digesting the move to the March high at a higher level. 

Gold corrected while NEM shares kept rising

After reaching the most recent high, nearby COMEX gold futures fell to a low of $1888.30 during the week of Mar. 28, falling 9.2% from the peak.

Gold Futures Weekly
Gold Futures Weekly

Source: CQG

Gold was trading below the $1983.55 midpoint of the early March high and around the most recent low at the $1955 level on April 12.

But the stock of Newmont Corporation, one of the leading companies that extract gold from the earth’s crust, continues to hit higher highs.

NEM Monthly 1990-2022
NEM Monthly 1990-2022

Source: Barchart

The chart shows that NEM shares reached a new record high of $83.72 in early April, even as gold was correcting. At the $81.34 level on Apr. 12, NEM remains not far below the all-time high. NEM has a market cap of over $64.22 billion and trades an average of nearly 7.8 million shares each day. The company also pays a current annual dividend of $2.20 per share which translates to a 2.7% yield.

In Q4 2021, NEM reported EPS of 78 cents, beating consensus forecasts by one cent. The company will report Q1 earnings on Apr. 22, and analysts expect NEM to earn 93.0 cents per share. 

NEM sending a signal for gold

Asset prices move higher when buyers are more aggressive than sellers. The rise in Newmont shares signifies that investors and traders are clearly going for the gold. As a leading gold mining company, the NEM price action reflects growing investment demand for the precious metal that tends to thrive when inflation increases and uncertainty on the geopolitical landscape escalates.

Meanwhile, gold and NEM shares have been trending higher in an environment where US interest rates and the US Dollar Index have accelerated.

UST 30Y Monthly 2009-2022
UST 30Y Monthly 2009-2022

Source: CQG

The chart shows the decline in the US 30-year Treasury bond futures to a low of 141-53 on Apr. 12, the lowest level since December 2018. Rising interest rates tend to weigh on gold and gold mining shares, increasing the cost of carrying precious metal inventories.

Moreover, the decline in the bond market often acts as a magnet for capital to flow to fixed-income products at the expense of stocks and commodities.

Meanwhile, rising US interest rates tend to push the US dollar’s value higher.

Dollar Monthly 2009-2020
Dollar Monthly 2009-2020

Source: CQG

The chart of the nearby US Dollar Index futures contract illustrates the move to over the 100 level late last week. The Dollar Index is trending towards the March 2020 103.960 high, the highest level since 2002.

While interest rate differentials support the US Dollar Index, a higher dollar often weighs on gold prices. A stronger dollar means that gold has rallied even more when valued in the euro, pound, yen, and other currencies. The gold rally in the face of rising interest rates and a strong US dollar underpins gold’s bullish trend as well as investor and speculative sentiment.

Mining stocks are leveraged instruments

Gold miners invest millions, if not billions, in mining properties. After locating proven and probable reserves, they work to extract them from the earth’s crust. Probable means there is a high chance of something happening, but there is not a 100% certainty. Therefore, mining is a highly speculative business.

The speculative nature of mining makes shares of miners more volatile than the commodities they extract from the earth. In gold, mining companies often outperform the metal on the upside and underperform on the downside.

NEM’s move to a new record high after gold pulled back from the early March peak sends a signal to investors in the company and the gold market.

Bull market for gold and NEM looks set to continue

With investors flocking to NEM, it may only be a matter of time before gold moves back above $2000 to another new high. Markets reflect the economic and geopolitical landscapes, which currently support rising gold prices.

While the US Federal Reserve will be increasing interest rates, the central bank remains far behind the inflationary curve. February CPI data at 7.9% and a Fed Funds rate at 25-50 basis points in early April continue to keep interest rates in negative territory.

The start of the war and sanctions in late February and rising commodity prices in March should push March’s CPI, released Tuesday, well over the 8% level.

The bottom line: economic and political environments support higher gold prices over the coming months and years. Every dip in gold since 1999 has been a buying opportunity. The rise in NEM shares tells us that the bull market in gold will continue to reach higher highs.

Newmont Mining: All-Time Highs Signal Bullish Moves For Shares...And Gold

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Newmont Mining: All-Time Highs Signal Bullish Moves For Shares...And Gold

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