Shares of Newmont Mining (NEM +7.85%) rallied on Wednesday, up 7.9% for the day.
Newmont already reported second-quarter earnings in late July, and there wasn't much company-specific news today. Newmont did announce it had agreed to sell an undeveloped gold project to Canadian mining company StrikePoint Gold for $70 million, plus an additional $50 million contingent payment tied to future milestones.
However, for the world's largest mining company that primarily mines gold, that small divestiture is relatively inconsequential. More consequential was today's rise in gold prices, driven by lower long-term interest rates, which appeared to be due to an increase in the Treasury Department's Treasury Bond buyback program announced this morning.
NYSE: NEM
Key Data Points
Scott Bessent's buyback lowers long-term yields
In recent days, the yields on longer-dated Treasury Bonds have increased to multi-decade highs. All else equal, higher long-term yields reduce the value of future earnings and have also tended to reduce the value of assets that don't pay cash interest or dividends.
Gold fits into this category, as gold tends to be seen as a store of value against inflation, but it's not an asset that pays out cash to its owners.
This morning, the U.S. Treasury Department under Treasury Secretary Scott Bessent announced at least a doubling of its Treasury Bond buyback program for long-dated Treasuries. The signal the Treasury is sending is that it will likely buy back longer-dated Treasuries at a discount, since long-term rates have risen, in an effort to tamp down longer-term interest rates. The Treasury Department will likely sell shorter-term Treasury bills and notes to do so.
That may put the Treasury at greater risk of short-term inflationary spikes, but the announcement did result in declining yields on longer-term Treasury Bonds today. And lower yields on long-term bonds tend to be a positive for gold prices.
Image source: Getty Images.
Newmont is a "safe" way to play gold prices
Newmont is a massive $120 billion market-cap company that trades around 13 times this year's earnings estimates, with a 0.9% dividend yield. While the stock may not have the upside of smaller, more speculative gold miners, it's one of the "blue chip" mining names that defensive investors can bet on to achieve exposure to higher gold prices.
Keep in mind, however, that despite its size and defensive qualities relative to mining peers, like all gold miners, Newmont is still essentially a leveraged bet on gold prices, which can cut both ways, including significant downside risk should gold prices fall.
