Easing dollar and rising gold a double whammy for stocks

IT WAS a nightmare day for the market, but for Australia's gold producers the news was doubly sweet.

IT WAS a nightmare day for the market, but for Australia's gold producers the news was doubly sweet.

Not only did gold prices continue their rise on the back of economic jitters, but a softening in the Australian dollar amplified the warm glow for local producers, pushing a number of share prices strongly higher.

In keeping with its safe-haven status in times of trouble, the gold price rose close to 4 per cent over the past six days to be hovering around $US1620 an ounce last night.

Over the same period the Australian dollar has fallen by more than 2? against the US dollar, meaning the gold price in Australian terms has risen from about $1544 an ounce to $1675 an ounce last night.

That combination of factors was enough to end Newcrest Mining's recent horror run, pushing shares in Australia's largest listed goldminer up by 42? to $24.53.

Smaller gold producers enjoyed much bigger gains, with Kingsgate Consolidated rising by almost 4 per cent, Evolution Mining rising by more than 5 per cent, Integra Mining more than 6 per cent, Perseus Mining by more than 7 per cent while Unity Mining by more than 8 per cent.

Mike Harrowell from BBY described the combination of the rising gold price and easing Australian dollar as a "double whammy" for those stocks and predicted margins in the gold production business could get even fatter over the next three months.

"We wouldn't be surprised to see gold test the $US2000 ($2063) mark," he said.

Despite the gains by Newcrest, analysts at Goldman Sachs were unimpressed, describing the 1.74 per cent gain as a "poor effort" compared with the 6 per cent and 7 per cent gains made by big goldminers such as Newmont and Barrick on foreign markets on Friday night.

The impact of the weakening currency on local miners was highlighted by the Reserve Bank in its recent monthly report on commodity prices: the Reserve noted the commodity price index improved by 0.9 per cent during May on Australian dollar terms, despite falling by 1.9 per cent on face value.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles