Is Newcrest Mining Ltd (ASX: NCM) a defensive ASX share? Well, you wouldn’t think so looking at today’s share price movements. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is down a depressing 0.87% and back under 7,500 points in the ASX’s first major selloff in weeks. But the Newcrest share price is down a nasty 3.12% today to $26.40 a share at the time of writing.
But one day of underperformance isn’t a lot to go on.
Newcrest is an ASX 200 gold miner. On the one hand, a gold share can be considered inherently defensive for some for its connection to gold. Gold is still viewed by many investors as the ultimate ‘safe haven’ asset. It often experiences interest during times of economic or geopolitical hardship. We can even see this playing out in 2022. This year has brought some calamitous geopolitical events, none more so than the war in Ukraine.
Since the start of the year, the price of gold has risen from around US$1,832 an ounce to the US$1,922 we see today.
Since Newcrest mines and produces gold, and also owns vast reserves of gold ore, it arguably benefits from this reputation for defensiveness by extension. That is tempered by the fact that it, like all gold miners, is a leveraged play on the price of gold. Since it costs Newcrest a relatively fixed sum to extract and produce every ounce of gold it mines, Newcrest’s profitability exponentially increases if the price of gold rises. Conversely, it exponentially falls if gold prices decrease.
Can Newcrest shares be a defensive ASX investment?
But let’s see what an expert ASX investor is saying about Newcrest’s defensiveness. James Rutledge of investment manager Perpetual Limited (ASX: PPT) recently sat down for a podcast with Livewire Markets. In this interview, he shared his views on Newcrest shares. Here’s some of what he had to say:
Newcrest is a buy for us. So, typically when you see real rates move from negative to positive, gold would be a pretty challenging space to invest. But given the freezing of FX reserves from Russia, we think that’ll cause central banks to really revisit their gold holdings and that should support the gold price. Newcrest is also very cheap relative to gold majors. It benefits from a higher copper price with its byproduct. And the market’s concerned about production issues, but we think that’s more than reflected in the price.
However, his fellow podcast participant, WaveStone Capital’s Raaz Bhuyan, wasn’t as bullish. Here’s some of what Bhuyan said on Newcrest:
It’s actually a sell for us. I agree with James – the geopolitics has really taken the gold price up, despite the fact that real rates are going up. We think the moment we get some clarity around the Ukraine conflict, given where real rates have moved, the gold price is probably going to be under the pump a little bit.
So two conflicting views on Newcrest there. As with any gold miner, the fate of this company rides or dies with the price of gold itself. So if you’re keeping an eye on Newcrest for a defensive investment, make sure you consider all sides of the equation.
At the current Newcrest Mining share price, this ASX 200 gold miner has a market capitalisation of $23.56 billion.