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Why the gold miners have sunk lower

The strong run of the Australian gold miners has come to an abrupt end on Monday.

Almost all gold miners have sunk notably lower today, dragging down the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) by as much as 2.3%.

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

  • The Evolution Mining Ltd (ASX: EVN) share price is down 1.5% to $2.76.
  • The Newcrest Mining Limited (ASX: NCM) share price is lower by 1.3% to $23.06.
  • The Northern Star Resources Ltd (ASX: NST) share price is off 5% to $5.92.
  • The OceanaGold Corporation (ASX: OGC) share price is down 3% to $3.50.
  • The Perseus Mining Limited (ASX: PRU) share price has fallen 1.1% to 45 cents.
  • The Resolute Mining Limited (ASX: RSG) share price is almost 3% lower at $1.15.
  • The Regis Resources Limited (ASX: RRL) share price is down 5% to $4.06.
  • The Saracen Mineral Holdings Limited (ASX: SAR) share price has fallen 4% to $1.52.
  • The St Barbara Ltd (ASX: SBM) share price has tumbled 3% to $3.74.

What happened?

The gold miners have come under pressure today after the price of the precious metal gave back almost all of last week’s gains.

Prior to the Australia Day holiday, the spot gold price was fetching US$1,366 an ounce. Whereas at the time of writing it has fallen 1% from this high to US$1,352 an ounce.

In addition to this, traders may be lowering their exposure to gold ahead of the Fed’s interest rate decision later this week. Although very few in the market expect another rate hike this month, a surprise increase could strengthen the U.S. dollar and weigh heavily on the gold price.

Also, for those wondering why the Northern Star share price has fallen more than most. This morning the large-cap gold miner’s shares were downgraded to an underperform rating with a $4.55 price target by analysts at Credit Suisse. The broker doesn’t appear to have been impressed by Northern Star’s latest quarterly release.

I expect the majority of these gold miners could underperform over the next 12 months if rates in the U.S. do rise as expected. In light of this, I would stay clear of them and focus on other areas of the market.

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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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