It looks like we’re having another top day on the ASX boards today. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is up 1.15% to 6,636.90 points, a new 8-month high. But not all shares are sharing in the spoils.
Looking at a list of the worst-performing ASX shares today, and a very consistent theme is obvious. The ASX gold mining sector is being smashed today. The worst performing ASX 200 share today (at the time of writing anyway) is Silver Lake Resources Limited (ASX: SLR), whose shares are down 7.69% to $1.72. Next up is De Grey Mining Limited (ASX: DEG), down 8.77% to $1.04. Evolution Mining Ltd (ASX: EVN) is down 6.24% to $5.11, while Saracen Mineral Holdings Limited (ASX: SAR) is down 6.72% to $4.86.
So what’s going on here?
Is gold losing its shine?
You don’t have to look too far to understand why ASX gold miners might be falling today. This morning, we woke up to the price of gold itself a lot lower than it was yesterday. Gold has fallen from roughly US$1,877 an ounce earlier in the week to the price of US$1,834 an ounce, at the time of writing.
Since gold miners can only sell their gold at the market price, this move represents a hit to these companies’ profitability (at least if gold stays at these levels) as their costs largely remain fixed. And gold has been in a tailspin for a while now, ever since making a new all-time high of US$2,061 an ounce back in early August.
But why is gold itself falling?
Well, reporting in the Australian Financial Review (AFR) this month sheds some light on that matter. The AFR asserts that the primary reason that gold is having a case of the wobbles lately is the positive news we’ve seen in recent weeks surrounding the development of coronavirus vaccines.
Remember, gold is viewed as a ‘safe-haven’ asset’, which was obviously a boon in a year of a global pandemic. However, now that a vaccine for said pandemic looks to be firming, the AFR implies that investors’ appetite for safe-haven assets is subsequently dropping.
However, it’s not all bad news for gold bugs. The AFR also quotes Joe Foster, the gold portfolio manager at VanEck. Mr Foster remains bullish on gold, stating:
We’re still going to continue to see the economy struggle (through 2021)… We’ll probably see more stimulus on the fiscal and monetary side and there will be a lot of risks. That should enable gold to stay above the $US2000 level for most of the year…
Countries all over the world have been blowing out their balance sheets by distributing trillions of dollars of QE (quantative easing). We’re seeing liquidity being pumped into the financial system on a scale we’ve never seen before… All this liquidity is creating a very high risk to the financial system.
Mr Foster sees gold rising to US$3,000 an ounce over the next 3-5 years as a consequence of “low real interest rates, blown-out balance sheets and a period of unfettered inflation”.