These gold miners are going berserk! Is it time to buy?

It’s likely that investors have at least entertained the idea of buying gold at some point this year.

After falling to its lowest level in six years late in 2015, the precious metal experienced its strongest quarter in more than three decades to begin 2016, providing plenty of energy for the gold miners themselves.

After a brief dip earlier this month, which saw gold fall to around US$1,210 an ounce, the metal has once again rebounded in spectacular fashion and is fetching US$1,281 at the time of writing.

So what exactly is driving gold prices?

Gold rises during times of heightened uncertainty. We’ve had plenty of that so far in 2016, with the latest bout coming from Britain’s upcoming referendum vote to leave or stay in the European Union.

In addition to being seen as a hedge against inflation, gold prices are also largely driven by fear. It’s unclear whether the Brexit vote will pass and, if it does, how that will impact Britain’s economy, and whether it could spread contagion throughout the global economy.

In addition, the US Federal Reserve’s reluctance to hike interest rates just yet is also likely having a positive impact on the price of gold. Gold doesn’t yield anything, so when interest rates rise, investors typically put their money behind something that does offer a decent yield. But while interest rates remain low, investors may be more inclined to stick with gold, for now.

Clearly, a higher gold price is a good thing for those companies which produce the metal. That would explain the meteoric rise of a number of the ASX’s gold miners so far in 2016, with shares across the sector soaring higher again today despite the fact the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) itself has dropped 1.7%:

  • Newcrest Mining Limited (ASX: NCM) is up 2.2%
  • Northern Star Resources Ltd (ASX: NST) is up 5.3%
  • Silver Lake Resources Limited. (ASX: SLR) shares are up 4%; and
  • Regis Resources Limited (ASX: RRL) shares have gained 9.3%

The big exception today is St Barbara Ltd (ASX: SBM) whose shares have dropped 5%, although they are still sitting more than 115% higher since the beginning of the year.

Should you buy the gold miners?

Seeing those kind of returns can make it very tempting to buy into the sector. However, investors do need to be careful.

As is the case with any commodity or resource, predicting the future price of gold is impossible to do with any certainty. Fear may drive its price higher in the short-run, but as those fears subside, the metal could just as easily come crashing back to earth – just as it did during its bear run from 2011 to late 2015 (it plunged around 42% from US$1,810 an ounce to US$1,050).

Gold could have further to run from here, but an investment in the sector today would have to be considered somewhat speculative. At the very least, investors should be mindful to not become overly exposed to the sector, and ensure they remain well diversified and focused on the long-term.

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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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