Despite the Federal Reserve hiking interest rates overnight, Australia’s leading gold miners were given a boost as the gold price defied the odds and edged higher.
At the time of writing the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) has bolted around 4% higher, bringing its year-to-date return to just over 10%.
Key movers amongst the gold miners include:
- The Beadell Resources Ltd (ASX: BDR) share price is up 6% to 30.2 cents.
- The Newcrest Mining Limited (ASX: NCM) share price is up 3% to $22.31.
- The Northern Star Resources Ltd (ASX: NST) share price is up 5.5% to $4.13.
- The Resolute Mining Limited (ASX: RSG) share price is up 9% to $1.47.
- The Perseus Mining Limited (ASX: PRU) share price is up 11% to 37.2 cents.
- The St Barbara Ltd (ASX: SBM) share price is up 7% to $2.66.
- The Troy Resources Ltd (ASX: TRY) share price is up 7% to 15.5 cents.
- The West African Resources Ltd (ASX: WAF) share price is up 8% to 21 cents.
Why has the gold price rallied?
Overnight the spot gold price rose almost 2% to US$1,222 an ounce. Though it is worth noting that this rally is more to do with the weakening of the U.S. dollar than an increase in demand for the precious metal.
Although the Fed raised rates, it appears to have left the market feeling underwhelmed by signalling just two more rate rises this year. In the last couple of weeks the Fed had hinted that the pace of tightening could pick-up, but this doesn’t appear to be the case any longer.
Are the gold miners a buy?
I see this as a temporary reprieve for the gold price, but expect to see it head down towards US$1,000 an ounce in 2018.
As I said yesterday, the gold price is highly sensitive to rising interest rates as it increases the opportunity cost of holding the non-yielding metal. At the same time rising rates also boost the U.S. dollar, which it is priced in.
Although Australia’s gold miners may now enjoy higher prices for a little longer than previously anticipated, I wouldn’t recommend an investment in them.
Just because the market expects just three rate rises this year, doesn’t mean there won’t actually be more. After all, up until a couple of weeks ago nobody believed there was a chance of a rate rise this week.