Why Newmont Stock Just Popped
Key Points
The U.S. Federal Reserve raised interest rates for the first time in three years yesterday.
The new target interest rate is 3.75% to 4%, and this makes savings more attractive than gold.
Gold prices fell yesterday, but are rising again today.
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Newmont Corporation (NYSE: NEM) stock jumped 2.8% through 10 a.m. ET Thursday as investors backed away from a sell-off sparked yesterday by the U.S. Federal Reserve raising interest rates for the first time in three years.
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What happened Wednesday -- and what it means for gold prices
Complaining that "inflation is too high and has been for too long," new Federal Reserve chairman Kevin Warsh announced yesterday the Fed will raise its target interest rate by 0.25%. The new range, 3.75% to 4%, means mortgages are about to become more expensive, credit card interest rates will rise, and bond yields will go up.
As a result, there's more incentive for people to save money in bonds and bank accounts (which pay interest) than to invest it in gold (which does not). Gold immediately sold off yesterday, falling to $4,333 -- the lowest price in a month. It's shooting back up this morning, however, gaining nearly $100 an ounce to more than $4,410.
What's next for Newmont stock
Where will gold prices go next? Don't I wish I knew! Honestly, with interest rates rising this week and likely to keep rising at future Fed meetings (to combat inflation), gold prices should probably resume falling. That's not happening today, however, and it might not happen tomorrow, either.
Rather than try to predict fickle gold prices, investors in Newmont stock are better off simply deciding whether Newmont stock is selling at a price worth buying.
How do you do that? Well, Newmont stock costs about 15.7 times trailing earnings today. Analysts polled by S&P Global Market Intelligence think Newmont's earnings will grow nearly 15% annually over the next five years, and the stock pays a 0.9% dividend.
Newmont stock sells for a small discount to fair value. It's a buy -- just not yet a great buy.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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