Gold shares hammered as the gleaming metal loses its lustre

Tale of woe in the gold sector as spot gold prices sink 2% overnight and more falls could be on the way

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 December 18, 2015 4:52 pm AEDT

Shares in ASX-listed gold miners have been hammered today after spot gold prices fell 2% to US$1,050.74 an ounce overnight.

At the close, this is how the gold shares fell…

Troy Resources Ltd (ASX: TRY) share price plummeted 8.5% to $0.22

Resolute Mining Limited (ASX: RSG) share price sank 7.7% to $0.24

Kingsrose Mining Limited (ASX: KRM) share price fell 7% to $0.20

Beadell Resources Ltd (ASX: BDR) share price dropped 6.9% to $0.14

Perseus Mining Limited (ASX: PRU) saw its share price slide 5.7% to $0.33

Ramelius Resources Limited (ASX: RMS) shares slipped 4.8% to $0.20

EVOLUTION FPO (ASX: EVN) saw its share price down 4.7% to $1.41

Medusa Mining Limited (ASX: MML) shares fell 4.2% to $0.34

Northern Star Resources Ltd (ASX: NST) saw its share price swoon 4% to $2.64

Doray Minerals Limited's (ASX: DRM) share price closed down 3.5% to $0.55

Newcrest Mining Limited (ASX: NCM) share price dropped 3.4% to $12.40

The spot gold price dropped to its lowest levels since October 2009 earlier this week, with higher US interest rates the main cause. As rates move higher, other assets begin to look more attractive and gold tends to get sold off. US Treasury yields have a strong negative correlation, while a stronger US dollar has an even closer inverse correlation to commodities prices.

The US dollar has gained 11.7% against the currencies of its major trading partners recently.

With the US Federal Reserve signalling further interest raises on the cards in 2016, gold prices could fall further from here.

The good news for Australian gold miners is that the Australian dollar is already falling against the US dollar, currently buying US 71.2 cents, and is likely to continue falling. A falling Aussie dollar could offset the impact of the falling gold price, but it seems investors in ASX-listed gold producers aren't having any of that.

In Australian dollar terms, spot gold is A$1,475 an ounce, allowing many to generate decent margins against their all-in sustaining costs (AISC) of between A$1,000 and A$1,100 an ounce.

Foolish takeaway

Risky at the best of times, investing in gold shares is not for the faint-hearted. Having learnt my lesson, I'm steering well clear of the sector.

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