Are Central Banks Affected by the Gold Rush? Should You Invest in Northern Star Shares?

17 Apr 2023

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In the late morning trade on Tuesday, the stocks of Northern Star Resources Ltd (ASX: NST) have risen by 1.8%.

The gold stock belonging to the S&P/ASX 200 Index (ASX: XJO) saw a closing price of $13.18 during trading on Thursday. At present, the shares are being traded at a rate of $13.42 per piece.

Even though Northern Star's shares cost more compared to many others in the ASX 200 group, the company did not change its expected earnings for the year when it reported its first-half financial results on February 20th.

The instructions provided indicate that they are expecting to sell 1,560 to 1,680 ounces of gold throughout the year at a cost that includes all expenses and is estimated to be between $1,630 to $1,690 per ounce.

At present, the price of gold is US$1,991 (AU$2,995) per ounce, which provides a substantial profit margin.

Furthermore, as central banks have been showing a strong desire for gold in 2022 and it is expected to persist in 2023, the profit margins may become even more enticing.

What is the reason behind central banks stockpiling gold?

The People's Bank of China has been buying gold consistently for the past five months, and this news has caused investors to pay attention to Northern Star's shares. In March, the bank added another 18 tonnes of gold to their reserves.

As per the report by Bloomberg, the People's Bank of China now possesses a total of 2,068 metric tons of gold, with an addition of 102 metric tons from November to February.

The renewed inflation across the globe as well as the escalating geopolitical instability has been the driving force behind the central bank's buying of the traditional safe-haven asset.

According to the World Gold Council, gold demand was boosted in 2022 by considerable purchases from central banks and consistent investments by individual retail customers.

The total amount of gold demanded by central banks in 2022 was more than twice the amount from the previous year, with a total of 1,136 tons. This has set a new record high in 55 years. In the last quarter of 2022 alone, central banks purchased 417 tons, which brings the total for the latter half of the year to over 800 tons.

In 2023, China's central bank is not the sole buyer of gold as Turkey and Kazakhstan are also adding to their collections.

The upcoming months could bring good news for the price of gold and the shares of Northern Star, thanks to this trend. It's likely to provide a positive boost.

Saxo Capital Markets expert, Jessica Amir, has stated that...

The reporting season in Australia is set to begin in August 2023. Our prediction is that the financial results of gold companies in Australia will exhibit significantly greater profit margins and will also give out larger dividend payments compared to their results from the same period last year.

Josh Gilbert, a market analyst at eToro, expressed optimism regarding the future of gold and Northern Star's shares. He believes that both investment options have great potential for growth.

Gilbert expressed optimism that gold will reach a new peak soon, given the solid interest from central banks and investors.

According to the statement, the increase in gold prices in 2023 is advantageous for Newcrest Mining Ltd (ASX: NCM) and Northern Star, local mining companies. This will potentially result in higher profits, subsequently leading to better dividends for investors.

Looking at the illustration provided, we can observe that Northern Star stocks have significantly profited from the increasing value of gold. The gold miner listed on ASX 200 has experienced a 23% growth since the beginning of 2023 and an astounding 64% surge in the last half year.

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