The gold sector is once again shining brightly for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) on expectations that the shiny metal could have even further to rise.
Indeed, the spot price of gold has skyrocketed since the beginning of the year, a time where it was trading near its lowest level in six years. From a low around US$1,050 an ounce, it has since rebounded to roughly US$1,236, making it one of the strongest starts to a calendar year in decades.
Although its momentum has slowed in recent weeks, a report from Bloomberg indicates that fund managers believe the gold price will continue to rise in the foreseeable future. Bloomberg quoted John Crumb, the chief strategy officer at investment firm GoldMoney as saying: “The upside is still greater than the downside.”
These expectations are at least partially due to the reduced expectations of further interest rate hikes in the United States before the end of the year.
Of course, a higher gold price is great for the companies that mine the shiny metal. That could explain why the shares of businesses such as Beadell Resources Ltd (ASX: BDR) and Newcrest Mining Limited (ASX: NCM) have risen so strongly today.
While the broader market has fallen more than 0.5%, the pair have risen 3.9% and 2.4%, respectively today. Meanwhile, Regis Resources Limited (ASX: RRL), EVOLUTION FPO (ASX: EVN) and Troy Resources Ltd (ASX: TRY) have all risen between 0.8% and 5.8% as well.
The price of gold could very well be driven higher in the coming weeks or months, particularly given the level of uncertainty that is currently surrounding the global economy. Indeed, some even believe the price of gold could head over US$1,400 an ounce, which would represent a gain of more than 13% from today’s level.
However, it’s worth remembering that investors were extremely bullish on gold back in 2011 and 2012 as well, with many economists predicting a bull-run to more than US$5,000 an ounce at the time. Clearly, it never reached those heights, instead plummeting to its six-year low price late last year.
Likewise, gold is no certainty to continue climbing higher today, either, with some economists suggesting a fall to below US$1,000 an ounce is a more likely scenario. That would likely have a very negative effect on the gold miners themselves if such a situation did play out.
Of course, predicting the future movements of commodity prices is all but impossible to do, but it is a risk worth considering before you commit too heavily to investing in the space.
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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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