Is the party over for ASX 200 gold shares?

Gold shares have been supported by the rising gold price in recent weeks.

| More on:
A woman holds a gold bar in one hand and puts her other hand to her forehead with an apprehensive and concerned expression on her face after watching the Ramelius share price fall today

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Citi is bearish on the gold price over the medium term
  • The broker is predicting about a 10% pullback in the gold price before the end of 2022
  • This is despite inflation risks and geopolitical conflict that could give gold some near-term support

ASX 200 gold shares have risen recently on the back of the shock invasion of Ukraine and rampant inflation. But the shine may be starting to come off. A leading broker forecasts a circa 10% drop in the gold price by year-end.

Citigroup is a medium-term bear when it comes to this precious metal. It believes the safe-haven asset will drop to US$1,750 an ounce in the December quarter, reports the Australian Financial Review.

"Our conversations with investors suggest spot price expectations are mixed on a [six to 12 month] view, understandably given the moving parts," the AFR quoted Citi.

"The caveat to our view is should the Russia-Ukraine conflict manifest into a macroeconomic shock, this could provide a more sustained bid for gold."

Have ASX 200 gold shares hit their peak?

If this prediction comes to pass, it may impact the share prices of gold mining companies such as Newcrest Mining Ltd (ASX: NCM), Evolution Mining Ltd (ASX: EVN), and Northern Star Resources Ltd (ASX: NST).

After all, these ASX 200 gold shares have rallied strongly in the past several weeks, along with the gold price.

Geopolitical tailwinds for gold

But the gold price could stay well supported in the near-term, concedes Citi. This is because the Russian central bank may be forced to buy gold on the open market due to international sanctions.

The country has been cut off from the international banking system and its currency has collapsed. The use of physical gold is one way for Russia to keep trading.

Russia turning to gold

The gold reserves accumulated by Russia are estimated to be worth about US$135 billion. Most of it is held in Russian-controlled territory. It makes Russia the fifth-largest holder of bullion amongst global central banks.

Importantly, Russia is a large gold-producing nation. It was ranked second in the world last year, behind China. Russia's central bank has said it will buy gold directly from Russian refiners.

Are ASX 200 gold shares worth buying?

There are two issues. First, Russia still doesn't have enough gold. This is because Russia is effectively cut off from all major currencies, including the euro. Plus, most of its overseas assets are frozen.

This means Russia's useable reserves may be as low as US$210 billion if only its gold and Chinese yuan reserves are counted, notes Citi.

The other issue is liquidity. It may not be as easy for Russia to trade using gold given it is cast out from international markets.

"Russia being excluded from the London physical gold market (and presumably from the Suisse refining centres) as well as the benchmark Comex bourse, might tighten availability of bullion stocks," says Citi.

The broker has a largely neutral outlook on ASX 200 gold shares. However, it does rate Evolution Mining and Northern Star as buys.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Brendon Lau owns Newcrest Mining Limited. 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.

More on Gold

rising gold share price represented by a green arrow on piles of gold block
Dividend Investing

1 Australian dividend stock quietly crushing the ASX today

The ASX 200 dividend stock has soared 38% since early October.

Read more »

a man wearing a gold shirt smiles widely as he is engulfed in a shower of gold confetti falling from the sky. representing a new gold discovery by ASX mining share OzAurum Resources
Gold

This ASX 200 gold stock could rise 25%+

Analysts expect golden returns from this mining stock.

Read more »

Woman holding gold bar and cheering.
Gold

Buy this ASX 200 gold share with 30% upside before it's too late

This stock could generate golden returns for investors according to Bell Potter.

Read more »

Woman holding gold bar and cheering.
Gold

Is it too late to join the booming ASX gold rush?

The gold price notched new record highs, adding fuel to the ASX gold rush.

Read more »

Calculator and gold bars on Australian dollars, symbolising dividends.
Gold

The gold price just reached its highest level ever: Which miners are buys?

Here's why the precious metal just hit a record high.

Read more »

A woman in a business suit sits at her desk with gold bars in each hand while she kisses one bar with her eyes closed. Her desk has another three gold bars stacked in front of her. symbolising the rising Northern Star share price
Gold

ASX 200 gold shares are booming on Monday. Here's why they could keep shining bright

Today’s strong rally among ASX 200 gold stocks may be just the beginning, according to this expert forecast.

Read more »

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
Earnings Results

Guess which ASX 200 gold stock is crashing on US$2.5b loss

This gold miner's results haven't gone down well with the market.

Read more »

plummeting gold share price
Share Fallers

How has this ASX 300 gold share managed to crash 50% today?

Investors have just lost half of their money with this stock.

Read more »