The gold miner Newmont Corp (NYSE: NEM) reported its second-quarter 2022 results on Monday, below Wall Street expectations amid lower gold prices and persistently high inflation.
How Did Newmont Perform in Q2?
Newmont named the lower prices of gold as one of the main reasons for having missed the Q2 analyst’s consensus.
The company also decided to increase its annual all-in sustaining costs from $1,050 per ounce to $1,150 per ounce, following an increase in the cost of labor, energy, and other inflationary factors. According to Newmont, higher fuel and energy expenses of around $50 million and $80 million associated with increasing prices of labor and material hurt its quarterly profitability.
The company also lowered its annual production guidance from 6.2 million ounces to 6.0 million ounces, leading its shares lower on Monday.
Newmont’s gold output, however, increased by 3.44% to 1.5 million compared to last year, mostly because of a higher ore grade milled at Boddington and Tanami mines in Australia.
“Newmont delivered a solid second quarter performance, producing 1.5 million gold ounces and generating $514 million in free cash flow,” Tom Palmer, Newmont President, and CEO said.
Reported net income from continuing operations is $379 million, or 48 cents per share, a significant decrease from $640 million, or 80 cents per share, in 2021. Based on Refinitiv IBES consensus, Newmont’s adjusted profit of 46 cents per share fell short of the analyst average estimate of 63 cents per share.
Why are Gold Prices Falling?
Gold prices fell 7% in the second quarter to mark the worst three-month performance period since early 2021. Weakening gold prices are a consequence of a strong dollar and aggressive rate hikes from central banks.
Since climbing beyond the $2,000 per ounce mark in early March due to the war in Ukraine, gold prices have fallen more than $350, or 16%.
“The fall in U.S. yields on the back of global recessionary concerns has underpinned gold,” managing partner of SPI Asset Management, Stephen Innes, said.
“Today, we could be seeing a touch of indecision ahead of the Federal Open Market Committee which is likely to underscore the Fed dilemma of fighting inflation at the expense of growth.”
Moreover, the markets are pricing in a 75-basis-point interest rate increase, as investors keep a close eye on the U.S. Federal Reserve’s two-day policy meeting, which ends on Wednesday. The European Central Bank (ECB) increased interest rates by 50 basis points in order to tackle the world’s growing inflation. It is anticipated that another increase will be made before the inflation rate returns to the target of 2%.
Gold has always been seen as a safe haven for investors, especially during turbulent financial and geopolitical times, but this time the relationship has been compromised as the U.S. Fed’s aggressive pace of tightening to battle inflation may halt economic development.
The median projection for gold prices for the months of April and June came in at $1,920 an ounce, according to the most recent quarterly survey of 31 analysts and traders, conducted by S&P Global in April. An increase compared with $1,770 from the quarterly poll in January.
For those holding foreign currencies, capital flows into the dollar, lessening gold’s appeal.
“The strong U.S. dollar is definitely not good for gold, and multiple rate hikes on the agenda in the U.S. are even worse,” head of commodity research at LBBW, Frank Schallenberger, said.
Newmont reported disappointing results for the second quarter to send its shares further lower. The company’s soft performance coincides with the falling gold prices that are suffering from aggressive central bank tightening and a strong greenback.