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Here’s why the gold price is going gangbusters

Tom Richardson

The Australian dollar gold price is around record highs this afternoon to lift popular gold miners such as St Barbara Ltd (ASX: SBM), Resolute Mining Ltd (ASX: RSG), Northern Star Resources Ltd (ASX: NST) and Evolution Mining Ltd (ASX: EVN) 9.7%, 9.3%, 6.9% and 6.1% higher this afternoon. 

One factor lifting the Australian dollar gold price is the local currency’s ongoing slide against the U.S. dollar in which gold is sold on spot or futures markets.

For example as at 15.50pm AEST the U.S. dollar gold price is US$1,386.30 which translates into A$1,985 per oz for local gold miners selling their product.

Moreover, many of these local miners incur nearly all of their costs in Australian dollars before selling their product in U.S. dollars, which means the falling Aussie dollar is a powerful tailwind to their all important profit margins.

As such we can see why many gold mining investors on the local market have enjoyed a profitable few years. 

The gold price moves in mysterious ways with many different inputs affecting it, although it’s generally acknowledged that as interest rates rise gold becomes less attractive as an investment as investors can gain better risk-free returns elsewhere by just sitting on cash or buying government bonds for example. 

However, it’s growing expectations that the US Fed may move to cut rates before the end of 2019 that means the gold price has caught an up draught. 

Commonly gold is also perceived as a hedge against downside risk in capital and equity markets and attracts anyone bearish on the outlook for the global economy. 

As such investors in the precious metal have an almost impossible amount of variables and information to weigh up before making an investment decision. Gold is not my cup of tea though.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

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