So far this year the Newcrest Mining Limited (ASX: NCM) share price has managed to carve out a gain of over 14%, outperforming both the gold index and the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Unfortunately though I think that Australia's leading gold miner may have peaked, meaning now could be a good time to consider locking in those gains.
Why now?
Firstly, I think investors ought to consider locking in gains on valuation grounds. Newcrest's shares are changing hands at a lofty 34x trailing earnings, which is remarkably high for a gold miner.
As a comparison, the shares of both Northern Star Resources Ltd (ASX: NST) and Evolution Mining Ltd (ASX: EVN) are trading at 18x trailing earnings today.
While I believe the high quality assets that Newcrest possesses are worthy of a premium over the average gold miner, I don't believe they are deserving of such a sky-high premium. Especially given that the general consensus is that its earnings will decline in FY 2018.
Another reason I am negative on its future is the prospect of rising rates in the United States. While the Fed have been slower to raise rates than I expected, I do believe that the U.S. economy is strong enough for three to four rate rises between now and then end of 2018.
If this does occur then treasury yields will widen and gold will likely lose its appeal with investors, causing its price to plummet. Gold miners have a tendency of rising and falling with the gold price, so this could drag Newcrest and its peers lower.
Finally, for a few traders gold is old news and no longer the safe haven of choice. More and more traders are heading to Bitcoin during risk events and I expect the cryptocurrency's popularity to grow in the future as the correlation grows stronger.
All in all, Newcrest may have beaten the market this year, but I would be very surprised to see it do the same in 2018.
