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Gold falls below US$1,100 an ounce: Is it time to buy?

gold gold bars

Gold investors enjoyed a strong rally between early August and mid-October, but that rally now appears to be over.

The shiny metal shed another 1.3% during the latest session to trade at US$1,089 an ounce, a full 7.5% lower than its US$1,177 price tag on October 28.

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. Many investors and economists begun to question whether the US economy was in fact strong enough to support a higher cash rate, generating more interest in the supposed ‘safe haven’ that is gold.

However, those hopes have faded somewhat. The Fed is now expected to hike interest rates for the first time in nearly a decade next month, which could mark the beginning of a gradual move back to more normal levels of monetary policy.

Indeed, gold does not grow, nor does it yield any interest or pay a dividend, so a rise in interest rates (and hence, the lure of higher returns) could attract investors away from the metal. An interest rate hike would also likely strengthen the US dollar, making it more expensive for international customers to acquire (as gold is priced in US dollars). This could hurt demand even further and would explain the sell-off over the last week or so.

This has certainly been reflected in the gold sector today, with a number of Australia’s gold miners getting sold off heavily. Newcrest Mining Limited (ASX: NCM), for instance, fell 4.9%, while EVOLUTION FPO (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) were also down 6.9% and 5.8% respectively.

Meanwhile, Beadell Resources Ltd (ASX: BDR) dropped 5.2%, Silver Lake Resources Limited. (ASX: SLR) was down 5.9% and Troy Resources Ltd (ASX: TRY) fell 5.2%.

Regardless of when it happens, an interest rate hike for the US Federal Reserve appears inevitable and that could push the gold price lower, putting even more pressure on those miners mentioned above.

Personally, I believe there are currently better opportunities for investors to explore than those in the gold sector.

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Motley Fool contributor Ryan Newman 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. You can follow Ryan on Twitter @ASXvalueinvest.

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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