Australian gold miners have been on a tear recently as a result of the soaring gold price. However, that seems to be coming undone today with the miners now leading the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) lower.
The shiny metal hit a three-month high of US$1,187 an ounce on Thursday last week, but has since retreated to US$1,173 an ounce. Although that's still considerably better than in early August when it was fetching less than US$1,100, there are signs it could continue to lose ground in the near future.
One of the factors that caused the mineral's price to spike was the presumed delay from the US Federal Reserve in hiking interest rates. However, most economists now believe US interest rates will be raised before the New Year which could hurt demand for gold, for two reasons.
First, gold does not yield any interest, so a rise in rates could attract investors away from the metal. Second, an interest rate hike would likely strengthen the US dollar, making gold more expensive for international customers to acquire (due to gold being priced in US dollars). This could hurt demand.
Here's how the gold miners are responding today:
- Newcrest Mining Limited (ASX: NCM) down 2.6%
- EVOLUTION FPO (ASX: EVN) plunged 6%
- Northern Star Resources Ltd (ASX: NST) sank 1.6%
- Regis Resources Limited (ASX: RRL) declined 4.3%
- Silver Lake Resources Limited. (ASX: SLR) dropped 4.1%
As is the case with all miners, their performance is highly correlated to the price of the commodities they produce. Although the gold price could soar from here, it's also possible that the mineral will continue to decline in market value, resulting in further losses for the gold sector.
Given the high level of unpredictability, investors may want to look at other options before diving into the sector.
