Could renewed inflation fears rekindle these ASX 200 gold shares?

Gold is often viewed as a hedge against inflation.

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S&P/ASX 200 Index (ASX: XJO) gold shares haven’t been having the best of years so far.

A number of factors have been at play impacting the share prices of each individual gold producer. But the slumping gold price, as you’d expect, has been a major tailwind across all ASX 200 gold shares.

What’s been going on with gold?

The yellow metal hit an all time high of US$2,035 per troy ounce back on 7 August 2020. While some analysts were calling for gold to keep marching higher, it went the other way.

Gold began 2021 trading at US$1,899 per ounce. By 29 September it had slid down to US$1,726 per ounce, a loss of 9.2% for the year and down 15.2% from the record high.

Since then, gold’s been trending slightly higher, currently worth US$1,761 per ounce. But that hasn’t been enough to lift the top ASX 200 gold shares back into the green in 2021.

How have these ASX 200 gold shares been performing?

To give you some idea of the impact of the sluggish gold price, we’ll look at the price moves of 3 leading ASX 200 gold shares.

Newcrest Mining Ltd (ASX: NCM) kicked off 2021 trading for $27.01 per share. Today the Newcrest share price is $24.28, down 10.1% year-to-date. In line with the rising gold price in recent days, Newcrest’s shares are up 4.3% over the past 5 days.

Evolution Mining Ltd (ASX: EVN) opened the calendar year trading for $5.30 per share. The Evolution share price has since fallen 28.9%, currently trading for $3.75. As we saw with Newcrest, Evolution’s shares have gained 1.4% over the last 5 days.

Rounding out our list of ASX 200 gold shares is Northern Star Resources Ltd (ASX: NST). The Northern Star share price opened on 4 January at $13.29 per share. At time of writing Northern Star shares are worth $9.40, down 29.3% year-to-date. Northern Star is also in the green over the past 5 days, up 2.2%.

Which brings us to…

Could renewed inflation fears rekindle these ASX 200 gold shares?

Gold is often viewed as a hedge against inflation. Meaning that investors tend to see it as a stable asset to own when fiat currencies are losing value each year.

Although the correlation isn’t perfect, bullion prices tend to rise when inflation spikes. And a growing number of economists are speculating that the inflation the world is witnessing, particularly for energy and many essential metals (not to mention housing), could be longer lasting than first hoped.

That’s seen central banks from Europe to the United States and even Japan, mulling potential rate hikes sooner than planned.

As the Australian Financial Review reports, “the Bank of England [is] setting the stage to be the first major central bank to hike rates since the pandemic hit”. The article notes that:

Futures markets are betting the Bank of England will lift interest rates from 0.1 per cent on November 4 to 0.25 per cent, following South Korea, Norway and New Zealand. They are pricing in a 90 per cent chance of a 15 basis points rate hike by the BoE before the end of the year, and two more increases next year.

Inflation concerns and potential rate rises haven’t yet had a major impact on the gold price or ASX 200 gold shares. But they have seen US 10-year Treasuries reach a 4-month high of 1.62%. The Aussie government 10-year bond yields have ramped up to 1.77%.

Inflation is even impacting Japan, a nation which has long battled deflationary forces.

Bloomberg notes that, “Japan’s consumer prices stopped falling in August for the first time in 13 months, ending the country’s longest deflationary stretch since 2011.”

According to Katsutoshi Inadome, a strategist at Mitsubishi UFJ Morgan Stanley Securities:

Japan’s breakeven is unlikely to fall immediately as it typically tracks the US breakeven inflation rate which is also on the rise. US inflation worries are lingering with the rise in commodities prices and supply constraints.

As for gold?

Ole Hansen, head of commodity strategy at Saxo Bank said:

Gold remains stuck in neutral as attempts to catch a bid on the back of surging energy prices have so far failed. A bigger-than-expected CPI print could be the trigger needed to send it through resistance.

The consumer price index (CPI) print Hansen refers to relates to US inflation. That data will be out today (overnight Aussie time).

If inflation appears to be running hotter than forecast, gold prices could benefit. And that should come as good news for ASX 200 gold shares.

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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 Bruce Jackson.

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