As expected the U.S. Federal Reserve raised interest rates by 25 basis points overnight to between 0.5% and 0.75%.
As it was deemed a near certainty the market had largely priced this rate hike in. But what they hadn’t expected was a hawkish Janet Yellen signalling three rate rises in 2017, compared to the two forecast at its September meeting according to Bloomberg.
This caused the U.S. dollar to surge and unfortunately for miners such as Newcrest Mining Limited (ASX: NCM), the outlook on gold has become more bearish.
Although the spot gold price has fallen 1.8% to US$1,143 an ounce since the hike, the S&P/ASX All Ords Gold Index (Index: ^AXGD) (ASX: XGD) is down a whopping 4% in early trade as investors sell off the gold miners.
Newcrest has been one of the hardest hit in the sector. Its shares are down over 4% to $17.75, knocking half-a-billion dollars off its market cap.
Elsewhere, Regis Resources Limited (ASX: RRL), St Barbara Ltd (ASX: SBM), Resolute Mining Limited (ASX: RSG), Northern Star Resources Ltd (ASX: NST), and Saracen Mineral Holdings Limited (ASX: SAR) have all dropped significantly this morning.
If the Fed does in fact raise rates three times in 2017 then I can only see the gold price heading lower from here. For this reason I would suggest anyone left holding the gold miners to seriously consider selling and moving onto other areas of the market with a better outlook in 2017.
I would suggest investors take a look at the healthcare and information technology sectors. At present there are a number of bargain buys just waiting to be snapped up.
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.
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