MENU

Why these gold shares are getting crushed today

OceanaGold Corporation (ASX: OGC) shares have crashed 14.5% today. EVOLUTION FPO (ASX: EVN) has also plunged 7.7% while Newcrest Mining Limited (ASX: NCM) and St Barbara Ltd (ASX: SBM) have dropped 6.1% and 7.3%, respectively.

The question is, what on earth is happening to the gold sector today?

Shares of the gold miners themselves are responding to a sharp drop in the spot gold price overnight. The shiny metal plummeted more than 3% to below US$1,270 an ounce, down from roughly US$1,340 just over a week ago. It’s gold’s lowest level since June – just before Britons voted ‘Brexit’ to leave the European Union.

As has predominantly been the case in recent times, it is fears of a potentially imminent interest rate hike in the United States that is throwing gold bulls into a frenzy.

Indeed, the gold market hates uncertainty surrounding US interest rates. Given that gold doesn’t actually offer a yield or any form of interest (it’s a rock, so it literally just sits there doing nothing), higher interest rates would likely attract some investors out of the sector in search of higher returns elsewhere. Higher US interest rates would also likely help to strengthen the US dollar, making it more expensive for international investors to buy gold (as it is priced in US dollars).

The market will be focused on the upcoming jobs report for the US economy which could influence when the Federal Reserve does decide to increase rates.

Aside from the companies mentioned above, Northern Star Resources Ltd (ASX: NST) shares have also crashed 9.8% while Independence Group NL (ASX: IGO) and Beadell Resources Limited (ASX: BDR) have fallen 6.1% and 8.3%.

This will no doubt come as a shock to investors in the gold sector – many of whom have enjoyed magnificent gains so far in 2016. While the price of gold has risen due to high levels of uncertainty in the global economy, gold bulls are now being reminded that the precious metal is by no means guaranteed to rise in value over time.

Investors – particularly those with a low appetite for risk – may want to give the gold sector a miss and focus on some of the high-quality businesses being found by everyday investors elsewhere in the market.

Discover Why These 3 Blue Chip Shares Are Set to Soar

Discover The Motley Fool's Top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.