Watch out below! The Northern Star Resources Ltd (ASX: NST) share price, Evolution Mining Ltd (ASX: EVN) share price and Newcrest Mining Limited (ASX: NCM) share price have been slammed over the past month.
NCM, NST and EVN share price versus ASX 200
Over the past month, the market — or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen 1% while each of these major gold miners have been crunched. Evolution Mining shares are down 12%.
What’s going on?
Over the past month, the gold price peaked around $1,640 per ounce but has since fallen to around $1,590 per ounce. Overnight, the price of gold in U.S. dollars fell another 0.27% to under $US 1,200 per ounce.
That mightn’t sound like much but the price of the shiny metal has staged a miraculous recovery over the past five years, from around $1,100 per ounce to over $1,700 per ounce late last year. Until recently, local gold producers had also experienced a welcome boost from a falling Australian Dollar ($A) (AUDUSD). Remember, if the Aussie dollar falls, it boosts USD sales — which is the currency for trading gold.
Shares of the major gold miners have gone along for the ride over the past few years, partly because of the rise in commodity prices but also because of their savvy management. For example, both Evolution and Northern Star Resources shrugged off concerns of falling market prices to use their strong balance sheets and acquire mineral-rich but cash-poor competitors. With the gold price subsequently rallying it’s fair to say it has paid off.
Gold is seen as a hedge against uncertainty. What that means is the more political risk and financial markets risk, the higher the gold price goes. The idea is that gold has been around for centuries as a store of wealth. So when the you-know-what hits the fan, investors buy gold. If that is as silly as it sounds, it’s because it is.
Nonetheless, it appears the markets have moved on from the shock appointment of President Donald Trump and other major market risks happening around the world. I think that only serves to emphasise the short-term nature of an investment in gold.
As a long-term investor, looking to sustainably grow my money, I wouldn’t buy gold. I might be tempted to buy a gold company, like Northern Star, but I’m waiting for a lower share price.
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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.