The evolving gold market dynamics & why Newcrest is in demand

Alison Savas


Gold and gold equities are viewed as a safe haven. As a result they typically exhibit a low correlation to global equities which is particularly true during drawdowns - so when markets go down, gold tends to outperform.

However, that’s not what happened in 2022, even with a backdrop of higher inflation. We saw the correlation between gold and global equities become higher than normal, and even rise throughout the year.

Gold was facing two major headwinds. 

  • The strong USD: The dollar’s been strong because the Fed has been running much more hawkish policy compared to other central banks. And given gold is priced in dollars, a strong dollar relative to other currencies has increased the cost of gold.
  • Rising real yields in the US: We actually get paid nothing to hold gold, so if real interest rates rise – that is the risk free return above inflation - the opportunity of cost of holding gold goes up. 

But now gold is starting to move 

After a lacklustre performance through most of 2022,  you might have noticed gold is back in the headlines. News over the weekend surrounding Newmont’s interest in Newcrest highlights the renewed activity and interest in the sector.

With the market becoming concerned about the US government hitting its debt ceiling and on reports central banks around the world have stepped up purchases of gold, the gold price has been on the move since late last year. 

At Antipdoes, our house view is that the case for owning gold is indeed strengthening. As is often the case in investment cycles, what were once headwinds for gold, look to be becoming tailwinds.

In the latest episode on our podcast, I discussed our investment team's views and due diligence on the yellow metal with Rameez Sadikot (Portfolio Manager and head of Antipodes Quant, Macro and Currency), and why we think Newcrest offers investors an attractive risk/reward opportunity (note, we recorded this episode just hours before the Newmont bid for Newcrest was announced).

The episode also covers our broader views for global equities, and why investors need to be mindful of bear market rallies.

Listen here:

You can also listen on Apple, Google, Spotify or on the Antipodes website. 

The case for Newcrest (ASX: NCM)

While we outline the strengthening case for gold in some detail on the podcast, the big questions for investors, is how can you play the gold trade?

Australian gold mining giant, Newcrest Mining is a holding in our global portfolios.

Newcrest has taken positive steps to maximise its portfolio by investing in projects like Lihir in Papua New Guinea which is on track to become a 1 million ounce per year mine with world class grades and lower costs, and longer-dated projects including Red Chris and potential expansion at Brucejack.

In total, this should see the company’s production grow 30% over the next five years in volume terms (copper and gold) and drive .

Newcrest’s all in sustaining costs could fall to circa $600 - $800/oz by the middle of the decade, versus an industry average of $1200/oz.

So, even if the gold price remains flat around current levels, Newcrest’s EBITDA can potentially double over the next 5 years - driven by 30% relatively high margin production growth which would see the company priced at 15% free cash flow yield. 

The recent bid from US mining giant Newmont shows we aren’t alone in identifying value in the company.

Discover Antipodes' differentiated approach to investing in global equities 

Read more investment insights here, and follow the team on LinkedIn

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Alison Savas
Investment Director

In almost two decades of investing in equities based in Sydney and Singapore, Alison has worked through various market cycles and navigated major market events. Alison is an investment director at Antipodes and a member of the senior investment...

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