Why are ASX gold shares being trashed on Tuesday?

The sector isn't shining today.

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A woman wearing a gold top and carrying a gold bar gives the thumbs down signal as she leans against a wall with a sombre look on her face as the Kingsgate share price goes lower

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ASX gold shares are taking a beating today, with significant declines across the board. Northern Star Resources Ltd (ASX: NST), Chalice Mining Ltd (ASX: CHN), and Newmont Corp (ASX: NEM) are all down, reflecting weaker gold prices this week.

Before this week's slump, gold was on a tear. It rallied for the last 18 months, reaching numerous all-time highs.

Several catalysts are thought to be behind the buying spree. Among them, the People's Bank of China (PBOC) increasing its reserves was one lever, according to BNN Bloomberg.

The PBOC has been a major buyer of gold bullion since before the rally in gold prices started. It held 72.8 million Troy ounces of gold at the end of May, an increase of 16% or 9.2 million Troy ounces since it began accumulating the metal en masse, BNN Bloomberg notes.

At the time of publication, the spot gold price is AUD$3,489 per ounce, down from all-time highs of nearly $3,600 per ounce last week. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down nearly 1.5% in afternoon trade on Tuesday.

Here's a look at what's unfolded and what it means for ASX gold shares.

ASX gold shares fall amid slump

Last Friday, gold recorded one of its worst trading sessions since 2020. It finished the day 2% lower after closing the previous session at all-time highs.

A strong US jobs report has reduced expectations for near-term interest rate cuts, strengthening the US dollar and weakening gold, The Wall Street Journal reported on Friday.

Additionally, the PBOC looks to have slowed its gold purchases in May. It didn't buy any new gold, momentarily pausing an 18-month buying streak. This added to the bearish sentiment, the reporting says.

Although traders bought gold on Monday, it wasn't enough to calm investors' nerves today. The S&P/ASX All Ordinaries Gold Index (ASX: XGD) is down more than 5%, dragging ASX gold shares like Northern Star, Chalice and Newmont along with it.

Northern Star shares have slipped around 5% today amid the broader trend impacting gold stocks and now trade at $13.85 apiece.

Meanwhile, Newmont shares are down more than 3% today and are currently swapping hands at $61.64 apiece.

It looks as if investors are reacting to the diminished appeal of bullion, resulting in share price declines for the ASX basket of gold stocks.

Chalice Mining shares study update

Chalice Mining shares are also down nearly 8% today amid the broader segment weakness.

But the company also released an update on its metallurgical test work and pre-feasibility study (PFS) this morning for its Gonneville nickel-cobalt, copper and palladium project.

Chalice's management indicated a potential upside for overall metal recoveries but noted that further tests are needed to quantify the impact. As my colleague James reported, the market's response has been negative, likely due to the extended timeline, with production not expected to start until 2029.

This wasn't enough to overcome the negative sentiment in ASX gold shares today. Coupled with the general decline in mining stocks today, Chalice shares have taken a significant hit and are now down nearly 79% in the last 12 months.

Takeaway: Fools gold

ASX gold shares remain under pressure today, with Northern Star, Chalice Mining and Newmont all experiencing notable drops. The broader decline in the gold market, influenced by strong US economic data and The PBOC's halt in gold purchases, looks to have significantly impacted this basket.

Investors in ASX gold shares should keep a close eye on these economic indicators and market trends moving forward.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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