ASX gold miners jump on soaring gold price and falling US dollar

Credit: Szaaman

For a few weeks economists around the world were pencilling in a US rate rise for June or July. This was largely down to the minutes from the Federal Reserve’s April meeting. These minutes revealed that if key indicators on inflation and employment stayed on a positive track a rate hike would be “appropriate”.

The prospect of this impending rise helped drive the price of gold down from approximately US$1,300 to US$1,200 per troy ounce in a matter of weeks. This unsurprisingly caused the share price of many gold miners to tumble down along with it.

Just like rate cuts have been weakening the Australian dollar, rate hikes are expected to increase the value of the US dollar.

Historically the US dollar and the price of gold have an inverse relationship. This is widely believed to be because when the US dollar starts to lose its value, investors look for alternative investment sources to store value. Conversely, when it starts to increase in value, investors leave alternative investments like gold and start buying up dollars again.

Up until late on Friday a rate hike looked to be imminent, but everything changed when the US non-farm payroll figure came in at a paltry 38,000. The market had been expecting the US to create 162,000 new jobs in May, so this was a huge miss that cast doubts on whether the Fed could even consider a rate hike in the near-term.

This caused the US dollar to drop and the price of gold to surge higher to US$1,243 per ounce, much to the delight of shareholders of some of Australia’s largest gold miners.

So far today we have seen Newcrest Mining Limited (ASX: NCM) climbing higher by 10%, Resolute Mining Limited (ASX: RSG) by 14%, Northern Star Resources Ltd (ASX: NST) by 12%, OceanaGold Corporation (ASX: OGC) by 11.5%, and St Barbara Ltd (ASX: SBM) by around 10%.

There could be further good news on the horizon for gold miners, too. The vote on Britain’s membership in the European Union is looking close. According to reports today, the leave vote has edged ahead by four points.

With just over two weeks to go until the vote, I believe the volatility that the world’s financial markets went through during the Grexit could possibly return. At the time, some economists predicted a Grexit could cause the gold price to climb as high as US$2,000 per ounce.

Whether that prediction would have happened or not, we will never know. But if Britain votes to leave the European Union on June 23 we might just get a taste of rocketing gold prices.

Foolish takeaway

Investing in gold miners can bring strong returns for investors, as the share price gains today show. But they are also incredibly volatile investments which are a little too high risk for my liking. For this reason I don’t believe they are suitable for the average investor, who might be better off reviewing the Motley Fool’s site for better options for their particular risk tolerance.

Instead of gold miners these five fantastic shares are investments that I personally would be more interested in concentrating on. All five have solid dividends and have strong businesses which could provide share price gains in the future.

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Motley Fool contributor James Mickleboro 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. I contribute to The Motley Fool as a freelance writer and the thoughts and opinions in this post are my own, not that of The Motley Fool’s.

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