It certainly hasn't been a great end to the week for Australia's gold producers. The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) may be up strongly today, but it is a completely different story for the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) which is down by 1% at lunch.
Amongst the worst performing gold producers today and dragging the gold index lower are Resolute Mining Limited (ASX: RSG), Saracen Mineral Holdings Limited (ASX: SAR), and St Barbara Ltd (ASX: SBM).
The reason for today's sell off is most likely attributable to a fall in the gold price yesterday. The gold price dropped to a two-week low of $1,318 an ounce on Thursday as a combination of lower safe haven demand and uncertainty surrounding U.S Federal Reserve policy led to many investors closing their positions.
Although weak economic data out of the United States momentarily caused the gold price to jump, according to the Wall Street Journal investors continue to be concerned over the possibility of an interest rate rise at next week's FOMC meeting.
If interest rates were to rise next week it is widely agreed that the gold price will drop. As gold pays nothing to its holders, it generally struggles to compete with yield-bearing assets when borrowing costs rise.
But because the market is largely undecided on whether or not there will be a rate rise next week, I expect the price of gold and Australia's gold producers will remain volatile.
In my opinion this is only good for short-term traders. As a result I would caution against investing in any of the aforementioned producers or even Australia's biggest gold miner Newcrest Mining Limited (ASX: NCM).
Whilst each of these miners has efficient and profitable operations, this counts for little if the gold price starts to plummet. Instead of investing in this area of the market I would recommend focusing on areas such as healthcare or information technology.
