July wasn't a great month to be holding gold stocks, particularly Australian gold stocks.
The S&P/ASX All Ords Gold (INDEXASX:XGD) (ASX: XGD) dropped around 13%, mostly thanks to falling gold prices.
As the chart below shows, the spot gold price fell from above US$1,160 an ounce to below US$1,100 an ounce. It's currently trading just above that at US$1,110 an ounce.
As usual, Australian gold producers plunged even further as the list and chart below shows.
- Gold Road Resources Ltd (ASX: GOR) fell 19% from 42 cents to 34 cents
- Resolute Mining Limited (ASX: RSG) crashed 20% from 30 cents to 24 cents
- Alkane Resources Limited (ASX: ALK) dropped 22% from 30 cents to 23 cents
- Perseus Mining Limited (ASX: PRU) tumbled 24% from 42 cents to 32 cents
- Medusa Mining Limited (ASX: MML) plunged 35% from 84 cents to 55 cents
- Beadell Resources Ltd (ASX: BDR) also lost 35%, falling from 19 cents to 12 cents
Source: Google Finance (note that Google calculations are out slightly compared to data above)
Gold mining companies will generally see their share prices overreact, depending on which direction the spot gold price is heading for one major reason. Investors are extrapolating the current short-term trend out into the future. In this case, many investors are expecting gold prices to continue falling, with at least one prediction of prices below US$1,000 an ounce. If the US Federal Reserve raises interest rates, that seems a highly likely outcome.
Foolish takeaway
Thanks to the Australian dollar falling to around US 73 cents, the current spot price equates to around A$1,571 an ounce. At these prices, most gold miners should be making a killing, but we'll have to wait and see their next financial reports for the proof. Call me a cynic, but my money's on expenses rising and eliminating much of the profit.
