After a sensational start to the year the Newcrest Mining Limited (ASX: NCM) share price has certainly hit a rough patch. Since Friday its shares have fallen 7.5%, wiping out around half of its year-to-date gains.
But it hasn't just been Newcrest Mining. Fellow gold miners St Barbara Ltd (ASX: SBM), Northern Star Resources Ltd (ASX: NST), and Resolute Mining Limited (ASX: RSG) have all fallen heavily, dragging the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) down a remarkable 8.5% since Friday.
What's happened?
Although the gold price has held reasonably firm at US$1,249 an ounce, the prospect of a U.S. rate hike in March appears to have put a stop to its recent rally.
According to CME Group, the probability of a rate hike in the United States at the Federal Reserve's March meeting has risen from 35.4% to 66.4%.
I believe a rate rise in March could put the Fed on course to raise interest rates between three to four times in 2017. If this happens then I expect bond and fixed income investments will become attractive, whereas yield-less gold is likely to lose its appeal.
Overall, I believe this has the potential to send the gold price back down towards the US$1,000 mark in 2018.
Should you avoid Newcrest?
With an all-in sustaining cost of US$770 an ounce, Newcrest would still remain profitable if the gold price fell as sharply as I expect it could.
But its lower levels of profitability may not justify the premium its shares trade at today. So for this reason I would suggest investors avoid Newcrest and the rest of the gold miners this year.
