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Gold shares sink: Should you be worried?

Shares across the gold sector are trading in the red today after the US Federal Reserve elected to hike interest rates.

The Fed Reserve lifted its key interest rate by a quarter of a percent – the third such increase in the past six months. It’s a sign that the central bank is confident that the North American economy is improving.

However, higher interest rates also mean higher risk-free returns for investors. It should also translate to a stronger US currency, over time, as foreign investment dollars find their way to that economy in search of higher returns.

Both of these factors could lessen the appeal of gold, and that appears to have happened overnight. The gold price retreated and is now fetching US$1,262 an ounce, down from more than US$1,290 recently.

The fall has certainly impacted shares across the gold sector. The Northern Star Resources Ltd (ASX: NST) share price has declined 3.8%, Newcrest Mining Limited (ASX: NCM) share price is down 2.4%, and the OceanaGold Corporation (ASX: OGC) share price has fallen 4.1%.

The sector as a whole has had a solid run since the beginning of the year, with the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) up 10.9% during that time. But where it (and the shares within the gold index) go from here could largely depend on how the gold price itself performs. If the gold price declines, it could spell trouble for investors in the sector.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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