If gold is regarded as a ‘safe-haven’ asset, why is the Newcrest share price still tumbling?

Why hasn’t gold and gold miner Newcrest been a better safe haven for ASX investors?

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Key points

  • Gold is often touted as a safe haven investment 
  • This reputation can also extend to gold miners, like Newcrest Mining 
  • So why haven't Newcrest shares proved a more effective safe haven over the past month? 

It’s been another rough and tumble kind of day for ASX shares. As it currently stands this Wednesday, the ASX 200 is pretty much flat after spending most of the day in the red so far.

This latest move puts the ASX 200’s losses over the past month alone at a painful 6% or so. So it might come as a surprise to some investors to hear that the Newcrest Mining Ltd (ASX: NCM) share price is also falling today. And by far more than the index too.

Newcrest shares are currently going for $24.86 each, down a nasty 0.84% so far today. Perhaps even more surprising is the fact that Newcrest has given up almost 11% over the past month, a significant underperformance of the ASX 200. I say surprising because gold, and gold miners like Newcrest by extension, have a well-developed reputation as ‘safe-haven’ assets. In other words, they are supposed to be counter-cyclical investments that protect an investor’s portfolio during times of fear.

Well, we are certainly in a fearful market right now. That’s just going off of the severity of the ASX 200’s losses over the past month. And yet Newcrest has been a drag on the ASX 200, rather than a saviour. What gives?

Why have gold miners like Newcrest been struggling?

Well, we only have to look at the gold price itself to understand why the Newcrest share price has been wobbly. A month ago, gold was being priced at around US$1,950 an ounce. In mid-April, the yellow metal even got close to US$2,000. But gold has slipped significantly since then. Today, it is only being priced at just under US$1,840 an ounce.

So has gold (and gold miners like Newcrest)’s role as a ‘safe haven’ now been debunked?

Not according to Chris Watling of Longview Economics. As we covered last month, Watling argued that it is the long term that investors should look to with gold. Here’s some of what he said:

We would argue, though, that gold has been remarkably resilient… While there’s strong evidence that gold is an inflation hedge over long periods of time, short-term price direction is determined by other factors…

Our central view is that it’s the latter, i.e. real yields, Fed rate expectations, and the dollar are likely to ‘top out’ and move lower in the near term (over the next few months). If that’s correct, then recent headwinds for the gold price should become tailwinds, with gold likely to break above its key resistance level [US$2,077 an ounce].

So perhaps it’s not a good idea to write gold, and gold miners, off just yet. But let’s wait and see how the precious metal fares over the rest of 2022.

Motley Fool contributor Sebastian Bowen has positions in 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 Scott Phillips.

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