In what was another nightmarish week for gold investors, shares of Newcrest Mining Limited (ASX: NCM) were absolutely crushed under the weight of the commodity's waning price.
Prior to last week, Newcrest's shares had risen more than 21% since the beginning of the year, heavily outpacing the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). However, gold then endured its worst run since 1996, falling over 10 straight sessions to a new five-year low around US$1,077 an ounce.
In what seemed like a blink of an eye, Newcrest's shares plummeted 14.6% to end the week trading at $11.27 after hitting a new seven-month low of $10.92 during Friday's session. EVOLUTION FPO (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) also ended the week 11.5% and 11.8% lower, respectively, while the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) as a whole plunged 14.5%.
Indeed, investing in the gold sector requires more than the skill needed to evaluate a company or its balance sheet. It also requires a great deal of luck relating to the movement of the resource's price which plays an enormous role in the profits the producers eventually recognise.
At the same time, all gold actually does is sit in a vault while investors hope it appreciates over time. Unlike other asset classes, it doesn't grow and certainly doesn't pay out incremental returns to investors in the form of dividends or interest payments.
As quoted by Fairfax, Jason Zweig from the Wall Street Journal put it perfectly when he described gold as "a pet rock" and owning it "an act of faith".
Gold prices are expected to continue falling over the coming months with some 'experts' going so far as to say it could trade at US$800 an ounce by the end of 2016. That would reflect a further 26% downside from today's price and would be a nightmare come true for the producers and investors alike.
With further headwinds facing the sector, investors would be wise to avoid it altogether and focus on the market's superior opportunities. Indeed, there are plenty presenting themselves right now for those investors who know where to look…
The smart money is looking for up-and-coming smaller companies with huge potential
