The Northern Star Resources Ltd (ASX: NST) share price is trading in the green on Thursday.
At the time of writing, shares in the gold miner are swapping hands more than 1.3% higher at $8.18 on no news.
Today's gain marks a 17% rally Northern Star shares have embarked on since bouncing off prior lows of $6.96 on 26 September.
Is Northern Star set to rise again?
To understand the forces at play with the Northern Star share price we have to take a step back and analyse the wider picture.
The key undercurrents that feed into the share are the gold price, and by extension, the macroeconomic landscape.
In particular, the strength of the US dollar has been a headwind for gold bugs this year, with the price of the yellow metal taking a backward step whilst the greenback surges to new highs.
This fits with the long-term correlation between the pair. Both are seen as quality/low-risk assets that investors flock to in times of turbulence.
However, the key difference this time is inflation and interest rates. With the rise in interest rates, investors can realise a positive yield on cash, whereas gold pays no interest.
As seen in the chart below, the inverse-like relationship has been in situ over the past 18 to 20 years, with the most recent rally in the US dollar correlating to a sharp reversal in the gold price.
It now trades at US$1,669 per troy ounce, down from highs of US$2,052/t oz in March.
Given its status as a producer of the precious metal, Northern Star is considered a price taker on the market price of gold.
As such, its share price fluctuates with volatility in the commodity markets, and this year's heavy sell-off in the gold markets has been reflected in the Northern Star share price.
Despite its most recent rally, it too trades well off previous highs, and has a sharp recovery ahead in order to reach these levels once more.
This activity is seen in the chart below, with the Northern Star share price in black.
Even more interesting, is the path of inflation expectations has been most heavily correlated with the price of gold (and hence, the Northern Star share price) in 2022.
Inflation/gold correlation
Inflation expectations are measured in a particular derivatives contract known as the five-year breakeven rate.
It measures what the market thinks the inflation rate will be over the next five years. As seen in the chart below, the market now believes that US inflation will be 2.32% in five years time, down from 3.6% in March (blue line).
Perhaps unsurprisingly, this is when the gold price peaked as well – despite all the debate on gold's status as an inflation hedge.
It is therefore a contentious debate as it appears the Northern Star share price is heavily linked to the price of gold, which is heavily linked to macroeconomic indicators like inflation, interest rates and the US dollar.
Northern Star also trades on a forward price-to-earnings (P/E) ratio of 23.7 times, ahead of the industry median of 6.4 times.
However, this does suggest investors expect an above-industry earnings result from the company over the next 12 months.
Meanwhile, the gold miner is also valued at a price-to-book (P/B) ratio of 1.14 times, and generated more than $570 million in free cash flow for FY22.
It's also rated a buy from 15 out of 15 analysts covering the share right now, with a consensus price target of $10.70, according to Refinitiv Eikon data.
Time will tell if all of these forces combine to inflect positively on the Northern Star share price. With no certainty on interest rates and inflation, the gold price could break out either way.
