The Newcrest Mining Limited (ASX: NCM) share price has had an incredible run since September 2018.
With the ASX 200 and wider global share markets having one of the most volatile periods since the Global Financial Crisis in the December quarter, the Newcrest price surged from $18.69 in September 2018 to over $21 around Christmas – smashing through its 52-week high at a time where the rest of the market was savagely selling off.
Now that the share market has recovered from the Christmas sell-off, Newcrest has latched onto the market coattails and is approaching its highest levels in almost 7 years, sitting at $25.35 at the time of writing.
So why is Newcrest managing to buck these market trends and keep on powering?
The answer is down to two factors in my opinion.
Firstly, the gold price itself has been on a tear over the last 6 months. Gold spot prices were hovering around US$1,180 per ounce in September 2018 but have since risen strongly since then, hitting US$1,345 per ounce in February (an increase of almost 15%) and hovering in the US$1,290 – US$1,310 range ever since. Newcrest has relatively low production costs, with a cost base of $835 per ounce, so this price surge (together with the recent falls in the Australian dollar) would have delivered a healthy bump to Newcrest's profit margins.
Secondly, gold has always been viewed as a 'safe-haven' asset. With the China-USA trade war continuing, conflicting signals coming from the US Federal Reserve and the slow-motion train wreck that is Brexit, investors remain very open to the appeals of the yellow metal and the companies that mine it. According to a report in the Sydney Morning Herald yesterday, US hedge fund Crescat Capital believes that buying gold is the 'trade of the century' right now and other similar positions becoming public do nothing to hurt the sentiment currently fuelling the gold markets and the Newcrest share price either.
Foolish Takeaway
Gold and gold miners have proved to be good recession-hedges in the past, as gold has always been the 'go to' asset in times of trouble. However, I believe both the rising gold price and the corresponding increases in the Newcrest share price are mostly speculative and that investors who are interested in pursuing this trend should be very cautious going forward.
