Is it time to turn bearish on gold shares?

Despite a positive lead from Wall Street overnight, the Australian share market has failed to hold on to its early morning gains, with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) slumping in afternoon trade to finish down around 0.5%.

Interestingly, the performance of gold stocks is not following the “play book” with a number of leading gold producers seeing their share prices sold off harshly.

At the close of Friday’s trading session:

  • Newcrest Mining Limited (ASX: NCM) had lost around 2.4%
  • OceanaGold Corporation (ASX: OGC) had slumped approximately 3.5%
  • St Barbara Ltd (ASX: SBM) was down around 1.7%
  • Saracen Mineral Holdings Limited (ASX: SAR) had slipped about 2.8%

Gold is currently trading around the US$1,080 per ounce level after rallying off of a 52-week low of US$1,050 in mid-December 2015.

Given the gains in the gold price – which have coincided with the recent increase in equity market volatility – gold stocks have over the past month rallied as one would expect.

In fact, over the past 30 days:

  • Newcrest has climbed 2.7%
  • OceanaGold has added 6.6%
  • St Barbara has soared 38%
  • Saracen has leapt 29.3%

In contrast, the S&P/ASX 200 is down around 0.4%.

As the 30-day performance highlights, gold stocks have been responding to heightened investor nervousness as one would expect them to, however Friday’s move will have some investors questioning whether sentiment has turned?

While Friday’s moves were indeed strange, given the strong outperformance of gold stocks over the past month, it would appear that investors still view gold as a safe-haven asset, a defensive asset class and a strong store of value.

Predicting which direction the gold price is headed over the longer term is a tough bet to make, however betting that gold will head higher in times of economic and equity market uncertainty would appear to remain a reasonable bet to make.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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