The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) may have fallen sharply lower today, but it has been a very different story for Australia's gold miners.
In morning trade the S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: XGD) surged 3% higher thanks largely to a jump in the gold price overnight.
Key movers in the industry include:
- The Alacer Gold Corp – CDI (ASX: AQG) share price is up 4.5% to $2.84.
- The Newcrest Mining Limited (ASX: NCM) share price is up 3% to $22.80.
- The Northern Star Resources Ltd (ASX: NST) share price 3% to $4.24.
- The Perseus Mining Limited (ASX: PRU) share price is up 4.5% to 34.5 cents.
- The Resolute Mining Limited (ASX: RSG) share price is up 3% to $1.45.
- The St Barbara Ltd (ASX: SBM) share price is up 3% to $2.64.
- The Troy Resources Ltd (ASX: TRY) share price is up 4.5% to 15.7 cents.
- The West African Resources Ltd (ASX: WAF) share price is up 5% to $2.37.
Why did the gold price jump?
At present the spot gold price is fetching US$1,245 an ounce, up almost 4% since this time last week. This is all the more remarkable considering that during this time the Federal Reserve has raised interest rates in the United States.
The main catalyst for this rise has been a weakening U.S. dollar. Although the Fed raised rates last week, in her post-hike speech Janet Yellen disappointed U.S. dollar bulls by failing to provide any reason for the market to believe there would be more than three rate hikes this year.
Furthermore, according to a report by Bloomberg, traders that were betting on a Trump bump have now given up. Research from the Bank of America shows that U.S. dollar positions accumulated in the build-up and aftermath of the U.S. election have now been fully unwound.
Is it time to buy the gold miners?
Whilst the jump in the gold price is great news for Australia's gold miners, I wouldn't get overly excited just yet.
I still believe that there is a reasonable chance that the Federal Reserve will raise rates four times this year. Should that happen then I would expect to see the U.S. dollar strengthen, putting significant pressure on the gold price once again.
Because of this I can't help but feel that the gold miners are a risky investment this year and that investors would be better off focusing elsewhere in the market.
