Gold's Double Top Indicates Possible Sharp Decline in Price
In a recent development, global financial services firm Citi has expressed concerns about Northern Star, Australia's leading gold miner, regarding its communication with the market regarding guidance for the new financial year. The concerns stem from an unexpected increase in production costs and future capital expenditure, as revealed in a production update released by the company on Monday.
The increase in capital expenditure for the 2026 financial year is estimated to be around $2 billion, according to analysts at Citi. This figure is 15% higher than what was initially expected, leading Citi to criticise Northern Star for the rise in costs.
The company's share price has been on a downward trend, with a 10.5% price fall on the Australian stock exchange over the past five trading days. This decline may indicate a possible sector-wide issue due to rising costs, as gold mining companies worldwide face economic pressures and increasing costs.
Despite the criticism, Citi has maintained a buy recommendation on Northern Star's stock but lowered its share-price target from A$22 to A$21. The last sales of Northern Star's stock were at A$17.18.
The gold mining sector is currently experiencing a volatile period, but experts do not necessarily predict an imminent bear market. Gold prices have recently reached record highs above $2,400 per ounce, driven by central bank purchasing, macroeconomic uncertainty, and ongoing sovereign debt concerns. This situation has buoyed sentiment for physical gold, and many analysts still view gold as a hedge against currency devaluation and global financial instability.
However, a "double top" pattern has been observed in the gold price, which hit a high of $3,433/oz on April 22 and repeated on June 13. This pattern is seen as a sign of a bear market developing, which could see gold quickly retreat below the $3,000/oz mark and potentially reach $2,500/oz by the end of the year.
Doubts have been building for months that the best of the gold boom has passed, with a steep fall more likely over the next 12 months. If the downward trend in the gold price develops, gold mining companies may find their costs coming under close scrutiny.
Nonetheless, select developers with quality assets are gaining attention, and major producers are showing strength. Rising costs are a persistent issue, but not necessarily the trigger for a sector-wide bear market unless accompanied by a significant and sustained drop in gold prices, which, as of now, is not the consensus outlook.
In conclusion, Northern Star faces criticism over its unexpected cost increases and guidance for the new financial year. The gold mining sector is currently experiencing volatility, but the outlook remains positive, with many analysts predicting a long-term bullish trend for gold driven by strong demand from markets like China and India.
- Citi, in light of Northern Star's unexpected increase in production costs for the upcoming financial year, which is estimated to be around $2 billion, has criticized the gold miner for the rise in costs, potentially impacting their investing decisions in Northern Star's real-estate holdings.
- Despite the criticism, Citi maintains a positive outlook on the gold mining sector, predicting a long-term bullish trend for gold driven by strong demand from markets like China and India, potentially offering opportunities for real-estate investments in the sector, such as those associated with Northern Star.
