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Why the gold miners’ share prices are soaring today

Australia’s gold miners are dominating the list of market movers today after the spot gold price rose 2% overnight. One ounce of gold is currently trading for US$1,084.48, up from last week’s multi-year low of around US$1,047 an ounce.

The reason behind the rising gold price overnight will likely surprise investors.

Indeed, the shiny metal has come under considerable pressure in recent times in the lead-up to this month’s highly-anticipated US Federal Reserve meeting where strong payroll data from the US late last week all but confirmed the Fed will go through with an interest rate hike.

Higher interest rates will likely attract investors away from non-yielding assets such as gold and towards other assets that do pay interest, such as bonds. As such, gold could have been expected to fall hard. Instead, it rose 2% to its highest level in roughly three weeks.

It’s possible that this can be attributed to the movement of the US dollar following the release of the data — or more specifically, the lack of movement from the dollar.

After all, a stronger US dollar is also bad news for gold prices as it makes it more expensive for international customers to purchase, so the lack of movement is encouraging. It also suggests that a rate hike might now be priced in, theoretically limiting the downside risk for gold.

A number of Australia’s gold miners were amongst the S&P/ASX 200’s (Index: ^AXJO) (ASX: XJO) top performing shares as a result. Newcrest Mining Limited (ASX: NCM), for instance, rose 4.2%, while Regis Resources Limited (ASX: RRL) and Northern Star Resources Ltd. (ASX: NST) gained 6.6% each.

Meanwhile, EVOLUTION FPO (ASX: EVN) and Beadell Resources Ltd (ASX: BDR) gained 6.2% and 7.1% respectively, while St Barbara Ltd (ASX: SBM) rose 6.6%. St Barbara’s share price has now risen 1,058% since the beginning of the year.

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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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