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Why these gold shares were smashed today

Australia’s ASX-listed gold producers have seen their share price hammered after spot gold prices fell again on Friday.

Prices over the past month have dropped from above US$1,290 an ounce to around US$1,212 an ounce most recently, as the following chart shows.

gold price chart May 2016

Source: Kitco.com

The fever that pushed the gold price has clearly dissipated on rising expectations that the US Federal Reserve is getting ready to raise interest rates again as the US economy continues to improve. A rising interest rate makes bonds more attractive as an investment compared to gold (which pays nothing).

In after-lunch trading, this is what is happening to some of the major ASX-listed gold shares…

  • Troy Resources Ltd (ASX: TRY) down 11.9% at 52 cents
  • Perseus Mining Ltd (ASX: PRU) down 10.3% at 46.2 cents
  • Resolute Mining Ltd (ASX: RSG) down 10% to 83.2 cents
  • Silver Lake Resources Limited (ASX: SLR) down 8.3% at 42.2 cents
  • St Barbara Ltd (ASX: SBM) down 5.6% to $2.51
  • Northern Star Ltd (ASX: NST) down 5.3% to $4.225
  • Newcrest Mining Ltd (ASX: NCM) down 2.4% at $18.66

The problem for shareholders is that the outlook for gold is not that great either. If the US does raise rates in the near-term, it’s highly likely more interest rate rises will follow, putting even more pressure on the gold miners.

The one positive is that with the Australian dollar buying around 71.7 US cents, Australian gold miners are still making plenty of gross profit with all in sustaining costs of around A$1,000 to A$1,100 per ounce. That compares to spot prices of around A$1,689 an ounce.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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