Double Top Signals A Potential Steep Fall In The Gold Price
The combination of higher costs and the potential for a steep fall in the price of gold could be seen this week in the share price of Northern Star, Australia's leading miner of the metal.
Beware a falling gold price
A favorite of investors since the gold boom started three years ago Northern Star has suffered a 10.5% price fall on the Australian stock exchange over the past five trading days, extending its loss over the past month to 18%
Investors and analysts were dismayed with a production update released by the company on Monday which contained an unexpected increase in production costs and future capital expenditure.
Analysts at Citi, an investment bank, criticized Northen Star for the increase in capex which was 15% higher than they expected.
Unwelcome Cost Surprise
'Northern Star needs to work on guiding the market as capex has moved up almost $2 billion for the 2026 financial year,' Citi said.
'Capex associated with the (ore processing) mill expansion such as a thermal power plant is news to us.'
Despite the bank's dismay with the company's guidance for the new financial year it maintained a buy recommendation on the stock but lowered its share-price target from A$22 to A$21, which is significantly higher than the last sales at A$17.18.
Easily the biggest of Australia's goldminers, the performance of Northern Star is seen by investors as a guide to the broader sector with the sell-off in its shares seen as pointer to a possible sector-wide decline as the reality of rising costs starts to bite.
English actress Tania Mallet guarding a pile of gold in her role as Tilly Masterson in the 1964 ... More James Bond movie 'Goldfinger. Photo by Silver Screen Collection/)
Until this week, there had been unbridled optimism that a rising gold price would wash away cost increases with the $1000 an ounce rise in the gold price over the last 12-months underpinning a 51% increase in the ASX gold index.
But 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 than a further uplift.
Chartists who track the gold price have been looking with concern at the 'double top' evident in the price which hit a high of $3433/oz on April 22 and effectively repeated that price on June 13 when gold returned to $3435/oz after a period of flat trading between the twin peaks.
A weaker period of trading appeared to be developing last week, offset by a fresh bout of confusion over U.S. tariff policy which has kept the gold price around $3330/oz.
Charting is an imprecise art, but it can be useful in showing a pattern in trading as well as pointing to a future trend.
A double top is seen as a sign of a bear market developing, a shift which could see gold quickly retreat below the $3000/oz mark with $2500/oz possible by the end of the year.
If that downward trend develops, as indicated by the gold-price chart, goldmining companies which have been relying on a perpetually rising price will find their costs coming under close scrutiny.
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