Time to jump on board the gold Express?

Gold miners soar as gleaming metal gains 1.9% overnight

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published March 19, 2015 6:05 pm AEDT

Gold stocks have soared today after spot gold rallied 1.9% to US$1,171 an ounce overnight.

Kingsrose Mining Limited (ASX: KRM) led the way with a 13.3% gain, followed by Resolute Mining Limited (ASX: RSG) and Perseus Mining Limited (ASX: PRU) with gains of 12%, while St Barbara Ltd (ASX: SBM) and Ramelius Resources Limited (ASX: RMS) also posting double-digit gains.

Among the larger stocks, Newcrest Mining Limited (ASX: NCM) rose 6.5% and Northern Star Resources Ltd (ASX: NST) a relatively lowly 1.7%, as did Regis Resources Limited (ASX: RRL).

The reason for the jump in the gold price and the Australian listed gold miners was the news that rising US interest rates are still some months away still. Many market commentators and investors had feared the US Federal Reserve would begin raising interest rates as early as June.

That appears to be out the window, and the appeal of gold to certain sectors of the community continues. Higher interest rates, of course, make other asset classes such as bonds and fixed income securities more attractive – so the rush out of gold into those types of securities appears to have been postponed for now.

The problem is that eventually US interest rates are going to rise – not in June, but maybe July, September, later in the year or early in 2016. As such, current gold investors are only delaying the inevitable, and the prospect of lower gold prices ahead is a near certainty (although I've said that before and been wrong).

The problem is bittersweet for Australia's gold miners. Rising US interest rates is likely to push the US dollar up, our dollar and spot gold down, but the price of gold in Aussie dollar terms could soar. At the current exchange rate of US 77.45 cents, gold is fetching the princely sum of more than A$1,500 per ounce.

At US 70 cents, Australia's gold miners would be receiving around $1,672 an ounce, using today's spot gold price.

But investors need to keep their eyes on their end goal. Very few gold miners pay dividends, so how are you going to generate a market-beating return? Hoping for a higher share price is not an ideal strategy.

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