The S&P/ASX 200 Index (index: ^AXJO) (ASX: XJO) has dropped 0.6% in later afternoon trading, but that's nothing compared to gold stocks, which are getting hammered.
Resolute Mining Limited (ASX: RSG) has dropped more than 8%, Kingsgate Consolidated Limited (ASX: KCN) is down 7.4%, while Evolution Mining Limited (ASX: EVN) has slipped 5.4%, and Beadell Resources Ltd (ASX: BDR) is down 5.3%. And that's despite the spot gold price rising slightly to US$1,319 an ounce overnight.
That's close to its highest level in two months, and a fantastic price for Australian gold miners, equating to around A$1,409 an ounce at current exchange rates.
Here are three potential reasons why the miners are being sold off…
1) Funds manager Fidelity Worldwide Investment says the crisis in Iraq is an opportunity for investors to take their profits on gold and invest into equities markets, which have been sinking. They weren't alone with Barclays analysts saying a price above US$1,300 an ounce is an opportunity to sell.
2) Analysts believe the spot gold price rise is only temporary, with underlying fundamentals not supporting recent price rises. A recovering US economy, low levels of inflation and low interest rates globally means equities still look more attractive than gold.
3) According to The Economic Times, physical demand from jewellers and retailers has been falling. Of course, that could also be attributed to the 10% rise in the gold price this year, with buyers viewing current prices as expensive.
For those investors looking to buy gold stocks on the cheap, now could be the perfect time. If that's not you, you might want to keep reading for our top tips in the oil, copper and gold sectors…
