Shares of Australian gold producers are rising strongly today following yet another rally for the shiny metal overnight.
Investors around the world have watched equity markets fall heavily since the beginning of the year with many, including Australia’s own S&P/ASX 200 (Index: ^AXJO), falling into official bear territory (down 20% or more from their peaks).
During times of distress and uncertainty, investors around the world often turn to the lure of gold which is widely considered to be a ‘safe-haven’. While they have sought shelter from the volatility of share markets, investors have helped the shiny metal to its strongest start to a year since 1980, according to The Telegraph.
One ounce of gold is now worth US$1,251 after rising 4.5% overnight, while it has risen 18% since the beginning of the year. What’s more, it is also trading at its highest level in more than 12 months after sinking to its lowest level in six years in October.
While gold miners around the world are benefiting from the higher price environment, those based in Australia also have the added tailwind of the weak Australian dollar, which is currently fetching roughly US71 cents. As gold is quoted in terms of US dollars, a weaker Australian dollar is good for our gold producers.
Indeed, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) itself has fallen 0.4% today, the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) index, which tracks the gold miners’ shares, has risen 3.4%. Here are some of the gains from the individual miners themselves:
- Newcrest Mining Limited (ASX: NCM) shares up 2.4%
- Northern Star Resources Ltd (ASX: NST) up 6.7%
- EVOLUTION FPO (ASX: EVN) up 7.7%
- Beadell Resources Ltd (ASX: BDR) up 11.8%
- Medusa Mining Limited (ASX: MML) up 11.1%
- Perseus Mining Limited (ASX: PRU) up 9.4%
As can be seen in the chart below, these companies have performed very well so far in 2016, despite the bruising start to the year for the broader market.
Indeed, shares of these businesses could continue to rise if the upwards trend in the gold price continues (and if the Australian dollar continues to fall). The problem is, a sudden fall in the gold price could also spell significant losses for shareholders in the sector, and this could happen when volatility in the markets eventually subsides.
There are headwinds facing the global economy right now, but many analysts have expressed that they believe the fears have become overblown. Whatever the case, predicting the future direction of gold prices is impossible to do with any accuracy, and investors should keep that in mind before making a move into the 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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