Are ASX gold shares like Newcrest overbought right now?

ASX gold shares like Newcrest Mining Limited (ASX: NCM) have soared in 2020, but are there big red flags ahead for the precious metal?

| More on:
Gold bear and bull share market

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Are ASX gold shares oversold? According to an article in the Australian Financial Review (AFR), there could be more risk than investors are currently pricing in.

Why gold prices continue to climb

The coronavirus pandemic has provided a trigger for global gold prices to climb higher. In fact, gold continues to push to new record highs beyond the US$2,000 per ounce mark.

Market volatility and a bearish outlook for the global economy are what started the momentum. However, the gold mania that has taken over markets is being fuelled by a few other factors.

Central banks and governments have flushed a lot of cash into global markets. That means money supply is increasing and, in normal times, you'd expect to see inflation push higher.

Gold has historically also been a good hedge against inflation. That's good news for investors in ASX gold shares who are hoping to protect against downside risks.

However, while there are some big pluses to holding gold right now, it's not all good news.

Are there risks ahead for ASX gold shares?

The Newcrest Mining Limited (ASX: NCM) share price slumped 2.0% lower but is up 21.0% for the year.

It's a similar story for Saracen Mineral Holdings Limited (ASX: SAR) with the ASX gold share climbing 77.4% to $5.89 per share.

But according to the AFR article, gold is not just a one-way bet in 2020.

For one, the article notes a drop-off in end-user demand for gold. That's largely driven by the jewellery industry which is a heavy user of the precious metal.

Jewellery demand dropped 51% compared to the first half of 2019 according to a report from the World Gold Council.

The other factor is a fall in demand from central banks around the world. That same report noted central bank demand of 233 tonnes in the first half of 2020, down 39% on 2019 figures.

The AFR article also notes that US real yields have potentially bottomed out with little room to fall further. That means the potential attractiveness of gold as a hedge could be similarly limited.

Foolish takeaway

I think ASX gold shares are delicately balanced right now. While the likes of Newcrest and Saracen have climbed higher this year, some investors are starting to think they've been overbought.

That's why I think Newcrest's full-year earnings announcement on Friday is worth watching. It will give investors a good look at what we can expect from ASX gold shares in the next 6 to 12 months.

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Gold

Gold bars and Australian dollar notes.
Gold

ASX 200 gold stock leaps higher on record cash flow in Thursday's sinking market

The ASX 200 gold stock is bucking the broader market sell-off today as cash flows hit new highs.

Read more »

Rising price of gold represented by a share price chart and gold bars.
Gold

The gold price just booked its best quarter since September 1986. Where to now?

Up 19% in the first quarter of 2025, what can investors expect next for the gold price?

Read more »

Female miner smiling in front of a mining vehicle as the Pilbara Minerals share price rises
Gold

Up 189% in a year, what's next for this ASX small-cap gold share?

This explorer has released details of a maiden drilling program amid the gold price smashing a new record.

Read more »

A gold bear and bull face off on a share market chart
Gold

Why gold is not immune from a pullback

For many gold is seen as a hedge against market volatility. But things don’t always go to plan.

Read more »

Woman with gold nuggets on her hand.
Gold

Big ASX news: Gold tops US$3,100 an ounce

Trump's new tariffs are spooking investors...

Read more »

a woman in a business suit holds a large solid gold bar in both hands with a superimposed image of a gagged gold line tracking upwards and featuring a swooping curved arrow pointing upwards.
Gold

ASX gold shares rally on another fresh record for the gold price

This corner of the market is dominating today.

Read more »

ASX gold share price.
Gold

Up 39% in a year, just how high will the gold price go?

At US$3,027 per ounce, the gold price keeps setting new record highs. Can this continue?

Read more »

Woman holding gold bar and cheering.
Gold

Up 50% in a month, why is this ASX All Ords gold stock surging again on Thursday?

The ASX All Ords gold miner is surging on Thursday even as the market sinks. But why?

Read more »