Is the gold price headed back to US$1,000 an ounce?

Gold bulls won’t like it much, but the odds of the gold price sinking towards US$1,000 an ounce or even lower are growing.

After hitting a high of around US$1,384 an ounce just a few months ago, the gold price has dropped to US$1,260 an ounce, including the biggest weekly fall in more than three years.

And it’s all got to do with signs of improvement in the US economy. According to Bloomberg, a resilient jobs market and gains for the service economy have signalled that expansion can continue even if rates rise. It also means there’s little need for investors to invest in safe-haven assets like gold.

That means that the US Federal Reserve is widely tipped to raise interest rates this year, reducing gold’s attractiveness against other assets like interest-bearing fixed income securities.

A brief rally in the past few days is unlikely to stop the rot, and those bargain buyers are more than likely going to get burnt. Goldman Sachs thinks that gold is a buying opportunity below US$1,250 an ounce, with the metal offering protection against risks to global growth and limits to central bank effectiveness.

But the odds of the US Fed raising rates is growing – there’s now a 68% chance of a rate hike this year, from around 20% three months ago.

Gold bulls might want to stand in the face of the oncoming storm, but there seems little doubt that the gold price is going down.

The only question is how far.

Gold has traded as low as ~US$1,050 an ounce in the past year – a six-year low in December 2015 – after the US Fed raised interest rates for the first time since 2006.

Australian-based gold miners still have the luxury of an exchange rate of around 75 US cents, so they will still be making decent margins. But the massive gains gold miners have seen so far this year as the table below shows, could easily evaporate as their share prices plunge.

Company Share Price Market Cap YTD Gain
Resolute Mining Limited (ASX: RSG) $1.70 $1,246.6 580%
Birimian Ltd (ASX: BGS) $0.40 $70.4 463%
Cardinal Resources Ltd (ASX: CDV) $0.67 $201.6 393%
West African Resources Ltd (ASX: WAF) $0.32 $153.2 357%
Gryphon Minerals Limited (ASX: GRY) $0.20 $90.0 346%
Dacian Gold Ltd (ASX: DCN) $3.29 $446.4 322%
Blackham Resources Ltd (ASX: BLK) $0.77 $217.2 248%
Beadell Resources Ltd (ASX: BDR) $0.42 $441.0 190%
Saracen Mineral Holdings Limited (ASX: SAR) $1.22 $985.2 96%
Alkane Resources Limited (ASX: ALK) $0.41 $204.6 76%
Newcrest Mining Limited (ASX: NCM) $20.53 $15,736.5 57%
EVOLUTION FPO (ASX: EVN) $2.18 $3,652.7 56%
Northern Star Resources Ltd (ASX: NST) $3.91 $2,348.1 40%

Source: S&P Global Markets Intelligence

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Here are 3 more rotten shares to sell, and 1 to buy today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

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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