The Newcrest Mining Ltd (ASX: NCM) share price will be in focus today after the gold price firmed even as Wall Street crashed.
Gold futures added around 2% to US$1,757 an ounce when the S&P 500 tumbled 1.2%. This is setting up the S&P/ASX 200 Index (Index:^AXJO) for a 1.6% fall this morning.
Respite for the Newcrest share price
But the Newcrest share price could outperform thanks to the gold price. Of course, it isn’t only Newcrest that will benefit from the bounce in the precious metal.
Best value ASX gold shares to buy
However, several experts believe that Newcrest represents the best value buy in the sector. This is in part due to its scale. Newcrest is the largest gold producer listed on the ASX.
The miner operates both open bit and underground mines at key projects Cadia, Lihir, Telfer/Havieron, Fruta del Norte and Red Chris.
Newcrest has recorded resources of 119.4 million ounces of gold, according to Macquarie Group Ltd (ASX: MQG). That’s miles ahead of the second biggest miner, Norther Star, which has 56.5 million ounces of gold.
Scale and cost to support the Newcrest share price
What’s more, the Newcrest share price benefits from being having one of the lowest cost operations among its peers. It’s C1 cash cost (a measure of operating costs) stands at under $400 (US$289) an ounce.
It’s all-in sustaining cost (a more complete measure of cost) comes in at just over $1,000 (US$723) an ounce.
This leaves Newcrest plenty of profit margin even if the gold price were to continue its retreat after hitting record highs of over US$2,000 an ounce.
Macquarie is recommending the Newcrest share price as “outperform” with a price target of $31 a share.
Cloudy outlook for gold
Gold has lost its lustre since bond yields started rising. The 10-year US government bond yield has rebounded to over 1.5% as the Federal Reserve indicated that it was winding back its Quantitative Easing (QE) program and could hike rates as early as next year.
Both QE and record low interest rates have suppressed bond yields around the world, but the tide is turning.
That’s not good news for gold, which is seen as a rival to US government bonds. Both asset classes are regarded as safe-haven investments.
The key difference is that bonds pay a regular distribution. As yields rise, investors have a greater incentive to buy government debt – all else being equal.
Expectations of a strong economic recovery that is prompting central banks to curtail QE and lift rates is also hurting gold. Gold tends to do better during times of economic uncertainty.
For these reasons, the Newcrest share price and other gold shares have lagged the market. Newcrest has lost 16% of its value since the start of this calendar year when the ASX 200 has rallied 10%.