Australian shares are once again crashing following a brutal night for equity markets around the world, but there is one sector that is shining bright.
Although they fell sharply yesterday, Australia's gold miners are soaring higher today after a rise in the price of gold overnight. The shiny metal is now fetching more than US$1,093 an ounce, up from a low of around US$1,080 on Tuesday night, providing investors with hope that the metal is not destined to resume its retreat following a brief rally.
While there are only 15 companies within the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) cohort which are currently trading in the black for the day, the top five are all gold producers.
- Northern Star Resources Ltd (ASX: NST) has risen 7.5%
- Regis Resources Limited (ASX: RRL) is up 6.8%
- EVOLUTION FPO (ASX: EVN) has gained 6.5%
- Newcrest Mining Limited (ASX: NCM) shares jumped 4.8%; and
- Beadell Resources Ltd (ASX: BDR) has jumped 3.1%
That compares to a 1.4% decline for the broader market, while the S&P/ASX All Ords Gold (ASX: XGD) index has risen 4.5%.
It's likely that one of the reasons behind the recent gold rally is the fear spreading around the globe regarding the slowdown in China, together with the plummeting oil prices. In times of fear or caution, investors can tend to return to gold, which is considered something of a 'safe haven'.
While that could certainly lead to further gains for our gold miners over the short term, or perhaps even the long term, the burden of risk, as always, lies with the investor who decides to buy. Forecasting the future movements of the gold price is impossible to do with any accuracy, and an ounce of gold could just as easily fall to US$500 in the next year as it could rise to US$2,000.
The direction of the gold miner's share prices will largely depend on where the price of gold itself goes, and investors should always be aware of that risk.
