Why We’re Lowering Our Price Estimate For Newmont Mining To $33

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Gold prices have declined considerably in the past few weeks amid firming expectations of an interest rate hike by the Fed in December. These expectations were given additional impetus last week by statements made to Congress by Janet Yellen, the Federal Reserve Chairwoman, who said that an interest rate hike “could well become appropriate relatively soon.” [1] In addition, the outcome of the recent presidential election has given an impetus to equities and further taken the sheen off gold prices.

Gold is considered a safe-haven asset from an investment point of view, with investments in the yellow metal generally made to hedge against macroeconomic uncertainty. Improving economic conditions tend to lower the investment demand for gold, negatively impacting prices. Moreover, since gold solely yields capital gains in terms of returns, rising interest rates make securities with returns linked to these rates more attractive avenues for investment. Steady gains in the U.S. jobs market has strengthened the case for an interest rate hike. The latest jobs report for October (released earlier this month) represented the seventy-third consecutive month of job gains in the U.S., resulting in the unemployment rate dipping below 5%. [2] Expectations of strengthening economic growth in the U.S. have further bolstered the case for an interest rate hike. The IMF expects U.S. economic growth to accelerate to 2.2% in 2017, up from an estimated 1.6% for this year. [3] Moreover, the outcome of the U.S. presidential election has boosted expectations of U.S. GDP growth going forward. President-elect Trump’s campaign promises of lowering the corporate tax rate, lessening the regulatory burden on companies, and a $550 billion infrastructure development plan have been well received by the equity markets. [4]

Given the changes to the gold pricing environment, we have revised our gold pricing forecasts to better reflect the new outlook for prices. The following graph illustrates our new forecast for gold prices.

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In addition to the changes to our gold pricing forecast, we have also suitably modified our margin forecasts in the light of the changes to our pricing outlook. This has translated into our new $33 price estimate for Newmont Mining, which better captures the business environment that the company currently faces.

Have more questions about Newmont Mining? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Newmont Mining

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Notes:
  1. Janet Yellen Says Interest Rates Could Rise “Relatively Soon”, Nasdaq []
  2. U.S. unemployment falls to 4.9% before election, CNN Money []
  3. World Economic Outlook October 2016, IMF []
  4. Trump presidential transition site pledges border wall, end of Dodd-Frank Act, Financial Times []