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Should you own Newcrest Mining Limited shares in 2017?

Gold bars and stock market

Shares of Newcrest Mining Limited (ASX: NCM) are rocketing higher again today. They’ve lifted another 4.6% to trade at $20.14, giving the shares a total gain of 11.4% since the beginning of the shortened week.

The likely catalyst behind Newcrest’s impressive rally has been an upswing in the spot gold price. At the time of writing, one ounce of gold is worth US$1,160. That’s up from US$1,148 an ounce yesterday afternoon and US$1,128 just over a week ago.

A number of other gold miners have also benefited. St Barbara Ltd (ASX: SBM) has lifted 11.1% today, EVOLUTION FPO (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) are up 7% and 6.2%, respectively, while Regis Resources Limited (ASX: RRL) has gained 5.8%.

In fact, those five gold miners (including Newcrest) are the top five performers for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) so far today.

What is happening?

The market’s appetite for gold and gold miner shares has waned significantly since the middle of the year. Not even Donald Trump’s unexpected victory in the US presidential election in November could reinvigorate demand for gold, as the precious metal declined to levels last seen in February.

However, gold is now being supported by a decline in the US dollar. According to the Wall Street Journal, the WSJ Dollar Index, which weighs the US dollar against a basket of other currencies, was down 0.5% to 93.07. A weaker US dollar typically supports gold prices because it makes it more affordable for international buyers to purchase. However, it is possible that thinner trading volumes (because of the Christmas and New Year holidays) may have exaggerated some of the moves.

Although it appears demand for gold and gold stocks has been reinvigorated, investors who are considering wading their way into the sector ought to be careful. While a weaker US dollar may help gold prices, rising US interest rates are likely to have the opposite effect. The US Federal Reserve is tipped to continue hiking interest rates in 2017, which could push the gold price lower once again.

Should you buy Newcrest?

Although Newcrest Mining’s share price has declined considerably since it peaked at $27.20 in July, the shares have still managed to rise more than 55% since the beginning of the year. By comparison, the ASX 200 has risen a mere 7%.

Source: Google Finance

Source: Google Finance

As has been demonstrated this week, gold miner shares typically rise and fall in tune with the gold price itself. If gold has a good year in 2017, so too could Newcrest Mining.

But the opposite could happen if gold prices fall next year. As it stands, the US Federal Reserve believes it could hike interest rates up to three times in 2017. That could help to strengthen the US dollar and remove some of the appeal for holding gold.

While I’m not speculating which way I think gold prices will go in 2017, I do think an investment in Newcrest, or any of the gold miners, is risky. Investors may want to look elsewhere.

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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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