S&P/ASX 200 Index (ASX: XJO) gold stocks, including Evolution Mining Ltd (ASX: EVN) Northern Star Resources Ltd (ASX: NST) shares, are getting hammered this week.
In late morning trade on Friday, the Northern Star share price is down 5.7% at $27.69. That sees Northern Star shares down 13.7% since Monday's close.
Evolution Mining shares are down 4.3% at the time of writing, changing hands for $15.05 apiece. This puts the Evolution Mining share price down 14.8% since Monday's close.
For some context, the ASX 200 is down 3.2% since the closing bell on Monday.
Here's how these other top ASX 200 gold stocks have performed over this same time:
- Newmont Corp (ASX: NEM) shares are down 11.5%
- Ramelius Resources Ltd(ASX: RMS) shares are down 10.0%
- Bellevue Gold Ltd (ASX: BGL) shares are down 11.7%
- Genesis Minerals Ltd (ASX: GMD) shares are down 9.0%
- Perseus Mining Ltd (ASX: PRU) shares are down 8.3%
- Vault Minerals Ltd (ASX: VAU) shares are down 13.2%
- Westgold Resources Ltd (ASX: WGX) shares are down 12.5%
- Ora Banda Mining Ltd (ASX: OBM) shares are down 3.2%
Image source: Getty Images
Why are ASX 200 gold stocks getting smashed despite gold's haven status?
In times of global uncertainty, investors often turn to gold as a relatively safe store of wealth.
And, indeed, on Monday, the gold price spiked to US$5,322 per ounce following the United States and Israel's military strikes on Iran. This, in turn, saw most ASX 200 gold stocks post outsized gains on Monday.
But over the following days, the gold price went into reverse.
The yellow metal is currently fetching US$5,094 per ounce, down 4.3% over the past four days.
"Gold's sell-off this week is a reminder to investors that even with rising demand for safe havens, the ultimate safe haven asset isn't immune if market forces work against it," Josh Gilbert, market analyst at eToro, said.
One of those market forces is the rapidly changing outlook for the prospect of interest rate cuts from the US Federal Reserve, the Reserve Bank of Australia, and a host of other prominent central banks.
That's because the sharp spike in oil prices (Brent crude is up 18% this week, trading at US$85.40 per barrel) is likely to fuel inflation worldwide. And gold tends to underperform in high or rising rate environments.
Fewer (or no) further interest rate cuts from the US Fed will also aid the already strengthening US dollar. And with the gold price in US dollars, that throws up additional headwinds for the yellow metal, as well as ASX 200 gold stocks.
According to Gilbert:
We're seeing similarities to what we saw in 2022. When Russia invaded Ukraine, oil prices surged, inflation spiked globally, and the Fed responded by hiking rates aggressively, which strengthened the dollar and sent gold lower for much of that year…
The physical gold market is also facing real disruption. The UAE, one of the world's most important regions for the global gold trade, closed its airspace over the weekend.
There are other forces pressuring the gold price as well.
As we've seen during other market pullbacks, traders have been selling off their gold holdings to meet margin calls, adding more gold supply to the market just as demand is dipping.
"This hints strongly at 'good for bad' activity in markets, where traders need to cover loss-making positions elsewhere by booking profits on their hitherto profitable trades," National Australia Bank Ltd (ASX: NAB) head of FX strategy Ray Attrill said (quoted by The Australian Financial Review).
Now what?
As for what's ahead for the likes of Northern Star and Evolution Mining, it's worth noting that the vast majority of ASX gold shares are still well into the green over the longer term.
S&P/ASX All Ordinaries Gold Index (ASX: XGD) – which also contains some smaller miners outside of ASX 200 gold stocks – remains up 95.7% since this time last year.
"The structural case for gold hasn't changed," Gilbert said.
He noted:
Central banks have been buying at a historic pace for three consecutive years, concerns around fiscal deficits remain firmly in place, and the geopolitical backdrop is arguably more uncertain now than at any point this year. Gold is still up almost 20% year to date, and with the conflict in the Middle East not seemingly letting up for now, buyers may not be gone for too long.
