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Why the gold miners are going gangbusters today

Although the market as a whole has sunk lower today, one area of the market is certainly booming.

In early afternoon trade the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) has jumped 2.8%.

Here’s a break-down of the movers and shakers in the industry today:

  • The Dacian Gold Ltd (ASX: DCN) share price has climbed 3% to $1.75.
  • The Evolution Mining Ltd (ASX: EVN) share price is up 4% to $2.37.
  • The Newcrest Mining Limited (ASX: NCM) share price has jumped 3% to $20.85.
  • The Regis Resources Limited (ASX: RRL) share price is 3% higher to $3.33.
  • The Resolute Mining Limited (ASX: RSG) share price is up 4.5% to $1.21.
  • The Saracen Mineral Holdings Limited (ASX: SAR) share price is up 4% to $1.06.
  • The St Barbara Ltd (ASX: SBM) share price has jumped 4% to $2.98.
  • The Tanami Gold NL (ASX: TAM) share price is up 3.5% to 6 cents.

What happened?

It appears as though weak retail sales and inflation data in the United States on Friday has many concerned that the Federal Reserve won’t be able to raise interest rates at as quick a pace as first expected.

This, combined with market jitters over the consequence of President Trump’s recent actions, has led to the spot gold price gaining almost 1% from yesterday’s low to US$1,242 an ounce.

Considering the low all-in sustaining costs of many of the miners listed above, I can’t say I’m surprised to see their shares rise. At the current spot price a lot of these miners are enjoying high margins and bumper profit growth.

But things can change very quickly, let’s not forget. According to CME Group there is still a 69.2% probability of a rate hike at the Federal Reserve’s June meeting.

If rates do rise and then economic data supports further rate hikes this year, I can see the gold price coming under considerable selling pressure. This in turn is likely to weigh heavily on the gold miners’ shares.

Because of this I would skip the industry and focus elsewhere in the market.

These high-flying growth shares would be far better investments than the gold miners in my opinion. Each looks set to deliver bumper profit growth of their own this year.

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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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