On Friday afternoon I wrote about how AngloGold Ashanti Limited (CHESS) (ASX: AGG) and its fellow gold miners had seen their respective share prices spike following another jump in the gold price.
That particular jump in the gold price appeared to be caused by investors and traders anticipating another terrible U.S. non-farm payroll reading later that day.
Although relatively few economists believe that the Federal Reserve will be in a position to raise interest rates this year, an underwhelming jobs report was seen by many as ruling them out once and for all. With interest rates potentially remaining lower for longer, the gold price was free to climb higher.
But the market couldn't have been more wrong with the non-farm payroll reading. The forecast was for 180,000 new jobs to be added to the economy, but in fact a stunning 255,000 new jobs were created. According to CNBC the probability of a September rate hike rose from 12% to 18%, while a hike before the end of the year moved from 34.4% to 46.5%.
The increased probability of a U.S. rate hike this year led to the gold price dropping all the way from US$1,364 an ounce on Friday to US$1,331 an ounce today. If more economic data is released in the coming weeks that further raises the probability of a rate hike, then it is increasingly likely that more weakness will form in the gold price in my opinion.
As a result St Barbara Ltd (ASX: SBM), OceanaGold Corporation (ASX: OGC), Newcrest Mining Limited (ASX: NCM), Resolute Mining Limited (ASX: RSG), and Northern Star Resources Ltd (ASX: NST) are all facing steep declines in their share prices today.
Although at these prices it doesn't go anyway near threatening the overall profitability of the majority of Australia's gold miners, it could of course slow their profit growth moving forward making them less attractive investments today.
Whether or not to buy in on today's weakness is entirely down to where the price of gold heads to in the long-term. But because nobody knows this for sure, an investment would be reasonably high risk. Because of this I would suggest that anyone bullish on gold and investing in the miners limits it to just a small part of their portfolio.
