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Why Newcrest Mining Limited and the gold price have gone nuts in the last month

gold bullion
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The market may have dropped lower today, but it has been a very different story for Newcrest Mining Limited (ASX: NCM) and the rest of Australia’s leading gold miners.

In morning trade the S&P/ASX All Ords Gold Index (Index: ^AXGD) (ASX: XGD) was up 1.7%, compared to a 0.7% decline from the benchmark S&P/ASX 200. Remarkably this means the gold index has now rallied over 30% in just the last 30 trading days.

During that time Newcrest has matched the index with a 30% gain, Northern Star Resources Ltd (ASX: NST) is up 33%, Regis Resources Limited (ASX: RRL) has gained 37%, and Resolute Mining Limited (ASX: RSG) has climbed a massive 42%.

The reason for this incredible rally has been the surprise rebound in the gold price. Currently the spot gold price fetches US$1,204 an ounce, which is an increase of approximately 6.2% from this time last month.

The gold price started to come under heavy pressure in November when the prospect of higher U.S. interest rates dampened demand for the non-interest-bearing precious metal.

But since mid-December the gold price has started to edge higher as uncertainty sets in over how President-elect Donald Trump will implement plans for economic growth.

A further boost is likely to have come from concerns over Britain’s exit from the European Union. On Tuesday prime minister Theresa May will reveal her government’s exit plans, with many predicting that she will opt for a “hard” Brexit.

A hard Brexit will see Britain leave the E.U. and the single market entirely and then have a relationship based on World Trade Organization rules according to the BBC.

This is not the preferred choice of financial markets that want a soft Brexit which would see Britain retain some form of European Union membership in return for a degree of free movement of people.

Whichever route Theresa May opts for today, there will no doubt be a fair bit of volatility in the gold price.

Whilst the gold miners are admittedly a tempting proposition at this point in time, I wouldn’t be in a rush to invest.

I expect that when Trump eventually provides his plans for economic growth, the gold price could come tumbling back down again. This makes it a great playground for traders, but certainly not for investors.

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Returns as of 6th October 2020

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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