Australia's gold miners have continued their rampant run today despite the general pullback in share prices across the broader market.
While the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) itself is down 0.4%, gold producers EVOLUTION FPO (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) are up 1.9% and 2% at $2.16 and $4.29, respectively.
Meanwhile, Newcrest Mining Limited (ASX: NCM) and Silver Lake Resources Limited. (ASX: SLR) have gained 2.3% and 6%, Regis Resources Limited (ASX: RRL) is up 2% and St Barbara Ltd (ASX: SBM) shares are up 1.3%.
The chart below shows the returns from this group since the beginning of the year:
As can be seen, the gains across the sector are not limited to today. Instead, many of the gold miners have produced outstanding returns over the last four months or so, including Silver Lake Resources' 147% gain, which has been driven mostly by the surging gold price.
Up from a multi-year low of US$1,050 an ounce in December, the shiny metal is now knocking on the door of US$1,300 an ounce after experiencing its strongest quarterly surge in more than three decades. This headline from Bloomberg, followed by the quote "absolutely no one saw this coming", says it all:
"Even Bulls Get Stampeded by Gold's Best Quarter in Three Decades" – Bloomberg, March 2016.
The charge has largely been driven by the weaker US dollar, which itself has been reflected in Australia's climbing dollar. While most economists expected the US Federal Reserve to hike interest rates around four times in 2016, expectations have diminished since then which has had a negative impact on the US greenback.
As gold is quoted in terms of US dollars, the weaker US dollar is a positive for international buyers in that gold becomes cheaper to purchase.
However, it's likely that fear and uncertainty have also had an impact on the price of gold (and thus, the share prices of the companies mentioned above). Although share markets around the world have largely recovered from the sharp dive earlier in the year, many remain uncertain about the health of the global economy which could be driving prices up.
That is good for gold investors in the short-term, but if that level of fear and uncertainty subsides – which it almost certainly will, over time – gold prices could begin falling again, dragging on the gold miners as well.
I won't even profess to know where gold prices will be next week, next month, or even next year. Indeed, consistently forecasting metal prices is impossible to do with accuracy, and that is one thing you need to consider before you even think about investing in the gold sector.
