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Why ASX gold mining shares rocketed higher yesterday

Kenneth Hall
share price higher

The top ASX gold mining companies like Saracen Mineral Holdings Limited (ASX: SAR) saw their share prices rocket higher yesterday as the ongoing US–China trade war sparked risk-off sentiment across global and domestic markets. 

Strong gold prices have fuelled share prices in 2019

The global gold price has been climbing higher for months despite strong equity performance, as investors have remained concerned about the potential impact of the US–China trade war and British geopolitical uncertainty.

Gold prices have hit record highs in recent days year high as macroeconomic conditions have deteriorated throughout the year, including the installation of a new British Prime Minister, Brexit uncertainty, the ongoing US–China trade war and Western tensions with Iran.

Australian markets have enjoyed strong gains to start 2019, with the S&P/ASX 200 (INDEXASX: XJO) index posting its best 6-month start to the year since 1991 amid record-low interest rates, a rebounding housing market and solid economic growth forecasts.

However, US President Donald Trump’s decision to place 10% tariffs on a further $300 billion worth of Chinese goods spooked markets on Friday, and this risk-off sentiment has been carried through to this week.

Additionally, China’s decision to allow its offshore yuan currency to devalue below 7 yuan per US$1 caused panic in the markets on Monday as the ASX 200 index sank 1.9% lower, followed by its 2.44% loss in yesterday’s trade.

Gold mining stocks surge despite resources sector downturn

While the Aussie resources sector has been hit hard, most of the damage has been to the share prices of iron ore miners including BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), which have sunk 9% and 7.5% since the start of August, respectively.

Meanwhile Aussie gold miner investors have cashed in so far this year, led by Saracen Mineral Holdings Limited, which has seen its share price climb 52% since the start of January amid the ongoing geopolitical tension.

With no resolution in sight for the US–China trade war, and the negotiations appearing to be getting worse before they get better, I’d expect to see the global gold price be sustained until some sort of resolution is reached.

As a result, I’d expect to see the ASX gold miners’ share prices climb higher in August, with the big risk factor that I can see being weaker-than-expected earnings in their respective full-year results.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019