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Why the gold miners have stormed higher

One of the few bright spots on a disappointing day of trade on the ASX has been the gold miners.

At the time of writing the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) is up a sizeable 2.6% and within a whisker of its 52-week high.

Here is the state of play in the industry at the moment:

  • The Evolution Mining Ltd (ASX: EVN) share price is up 2% to $2.76.
  • The Independence Group NL (ASX: IGO) share price has climbed 3% to $5.16.
  • The Newcrest Mining Limited (ASX: NCM) share price is up over 2.5% to $23.46.
  • The Northern Star Resources Ltd (ASX: NST) share price is higher by 2% to $6.27.
  • The OceanaGold Corporation (ASX: OGC) share price is up almost 2.5% to $3.59.
  • The Perseus Mining Limited (ASX: PRU) share price has jumped over 6% to 46 cents.
  • The Resolute Mining Limited (ASX: RSG) share price is almost 4% higher at $1.17.
  • The St Barbara Ltd (ASX: SBM) share price has climbed 3% to $3.81.

What happened?

As you might have guessed, today’s gains are largely down to a rise in the gold price overnight.

At present the spot gold price is fetching US$1,356 an ounce, up around 1% since this time yesterday. And investors appear to be betting that there are more gains to come for the precious metal in the near future.

However, this gain doesn’t have anything to do with increased demand for gold, but rather the weak outlook for the U.S. dollar.

Overnight the U.S. dollar index fell to its lowest level in over three years after one of President Trump’s advisers talked the currency down at the World Economic Forum in Davos, Switzerland.

According to Bloomberg, Treasury Secretary Steven Mnuchin endorsed the U.S. dollar’s decline as a benefit to the American economy and Commerce Secretary Wilbur Ross backed this up by saying that the U.S. would fight harder to protect its exporters.

What now?

It certainly is going to be an interesting 12 months for the U.S. dollar and the gold price. I expect a weaker currency will lead to higher inflation, which in turn is likely to support multiple rate hikes this year and a stronger U.S. dollar.

So while the gold price has been given a lift recently, I’m not convinced that prices will be anywhere near this level in 12 months. But, admittedly, it does have a habit of surprising.

So instead of risking money in the gold miners, I would consider these high-flying blue chip shares.

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Motley Fool contributor James Mickleboro has no position in any of the 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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