After a strong start to the day the local market has sunk into the red in afternoon trade.
One side of the market that is acting as a drag on proceedings today is the gold sector. Heavy declines in the sector have led to the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) sinking almost 2% lower.
Here's the state of play in the sector at the moment:
- The Evolution Mining Ltd (ASX: EVN) share price is 1.2% lower at $2.51.
- The Kingsgate Consolidated Limited (ASX: KCN) share price has fallen 14% to 34 cents.
- The Newcrest Mining Limited (ASX: NCM) share price is down almost 3% to $22.54.
- The Northern Star Resources Ltd (ASX: NST) share price is 3% lower to $5.85.
- The Resolute Mining Limited (ASX: RSG) share price has fallen 2% to $1.09.
- The Saracen Mineral Holdings Limited (ASX: SAR) share price is lower by 1.5% to $1.63.
Why are the gold miners sinking like stones?
Overnight the gold price continued to slide lower after the U.S. dollar strengthened amid rising bond yields. The catalyst for rising bond yields has been a positive U.S. inflation outlook and the decision of central banks around the world to pull away from stimulative policies.
Unfortunately for gold miners I expect there could be further declines for the gold price over the next 12 months as the Federal Reserve raises rates in the United States.
I believe this will result in widening risk-free treasury yields, reducing the allure of yield-less gold as a safe haven asset for traders.
This could also be an issue for shares which are classed as bond proxies such as Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD). Unsurprisingly these two shares have fallen more than most during trade today.
What now?
Overall, I would suggest investors stay clear of the gold miners and focus on other areas of the resources sector with better outlooks.
