ASX gold shares fall hard. Is now the time to buy?

Many investors see gold as a store of value in inflationary times.

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A woman wearing a gold top and carrying a gold bar gives the thumbs down signal as she leans against a wall with a sombre look on her face as the Kingsgate share price goes lower

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Key points

  • ASX gold shares broadly trailing the index
  • Gold prices sliding
  • Goldman Sachs releases bullish outlook for the yellow metal

ASX gold shares are taking a beating today.

The broader S&P/ASX 200 Index (ASX: XJO) itself is down 2.2% at time of writing. That brings it into official correction territory, down 10.3% so far in 2022. (Details here.)

But some of the top ASX gold shares are doing it far harder.

Newcrest Mining Ltd (ASX: NCM), for example, is down 4.8% today. Meanwhile the Northern Star Resources Ltd (ASX: NST) share price has dropped 7.9% today.

Trailing the pack is ASX 200 gold share Evolution Mining Ltd (ASX: EVN), down 11.4% today and 15.2% in 2022. Atop the wider woes impacting share markets in general and gold stocks in particular, investors appear to be pushing down the Evolution share price following the company’s quarterly update this morning.

What’s happening with gold?

ASX gold shares are under particular strain this week with a slipping gold price. Gold came under renewed pressure following hawkish comments from US Federal Reserve chair Jerome Powell, which caught many investors by surprise.

Gold, which doesn’t pay a yield, is viewed by many analysts as a store of wealth, and so often falls in the face of rising interest rates.

Since Wednesday the yellow metal has fallen 1.8%, currently trading for US$1,815 (approximately AU$2,545) per troy ounce.

As for our ASX gold shares, gold miners are said to be leveraged to the price of gold. That’s largely because their fixed costs are, well, fixed. Meaning any rise or fall in the price of bullion directly impacts their bottom line.

Take a step back to 2 June, when the gold price stood at US$1908 per ounce, 5% above today’s level, and you can see how ASX gold shares have performed as gold slides.

Since 2 June, the Newcrest share price has dropped 17.9%; Northern Star shares are down 24.9%; and Evolution mining has lost 34.2%.

The ASX 200 is down a more subdued 5.6% over that same period.

To be sure, there are many factors at play in determining the share price of gold miners. But the gold price is certainly a big one.

Why things could be looking up for ASX gold shares in 2022

While gold has come under pressure from expectations of rising interest rates, the yellow metal still has appeal for many as an inflation hedge and a haven asset during times of global conflict.

Goldman Sachs, for one, believes bullion is set for a solid run higher.

As Bloomberg reports, following Powell’s hawkish comments on a slowing global growth outlook alongside higher inflation, Goldman raised its 12-month outlook for gold to US$2,150 an ounce, up from US$2,000. That’s some 13% above today’s price.

According to Bloomberg analyst Mikhail Sprogis, “This combination of slower growth and higher inflation should generate investment demand for gold, which we consider to be a defensive inflation hedge.”

If Goldman has this one right, it should also provide some significant tailwinds for ASX 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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