It’s a reasonably steady day on the markets today. The All Ordinaries (ASX: XAO) index is pretty much flat after some healthy gains yesterday, Commonwealth Bank of Australia (ASX: CBA) shares are down, BHP Group Ltd (ASX: BHP) shares are up – life goes on.
But one sector is absolutely tanking today – our ASX gold miners. Here is a snapshot of the 5 biggest share market fallers today, with 4 out of 5 being gold mining companies.
Why are ASX gold miners falling today?
Not just falling, tumbling. Our biggest gold miner Newcrest Mining Limited (ASX: NCM) is down 4.33% at the time of writing to $30.06. Northern Star Resources Ltd (ASX: NST) is also down a sizeable 6.69% at $9, while Saracen Mineral Holdings Ltd (ASX: SAR) has lost a painful 8.33% at $3.41.
In my view, we can put these falls down to 2 interconnected factors – bullish sentiment surrounding stocks and a falling gold price.
With the US markets reaching new all-time highs this week (and the ASX hot on its heels), the appeal of a safe haven, hedge asset like gold has dampened considerably. To put it another way, there’s money to be made somewhere else right now for the market.
This (in my view) explains why the price of gold has plummeted this week. Gold started off the week asking around US$1,515 per ounce. Today, that same ounce will only set you back US$1,470 – a drop of nearly 3%.
Since gold miners’ costs are relatively fixed, any price increases or decreases of the yellow metal itself will lead to a magnified rise in profits or losses for the company. In other words, a 3% decline in the gold price translates into an even steeper drop in profitability. That’s my view on why we see a sentiment shift on gold miners today.
Gold miners remain a risky play on the price of gold. If you think this will rebound, it might make today a prime time to buy into the gold mining sector. But tread carefully, commodity prices are notoriously difficult to predict.
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Motley Fool contributor Sebastian Bowen 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 Scott Phillips.