Gold up, but losing the Midas touch
Australian goldminers may be cheering the US Federal Reserve's decision not to begin tapering, but the party is likely to be short lived.
Local gold stocks surged as much as 9 per cent on Thursday after the Fed stunned investors by holding firm to its huge bond-buying program.
Spot gold surged 4.1 per cent to $US1363.77 an ounce on the news, it's biggest one-day gain since January last year.
Local goldminers road the wave, with Newcrest jumping 7.9 per cent to $12.93 and St Barbara rising 20.2 per cent to 65.5¢. Kingsgate added 16.5 per cent to $1.91 and Silver Lake Resources gained 9.7 per cent to 85¢.
In the short term, gold has won a reprieve, but traders are taking a downbeat view on the long-term outlook.
The question of tapering is not if, but when. Eventually, once the Fed pulls back its bond purchasing, goldminers are likely to come under pressure.
During the Fed's various quantitative easing programs, investors have turned to gold as a haven, but now volatility has return to the precious metal market.
"There's nothing fundamental in gold, you can't really trade gold or gold stocks on fundamentals, gold itself is just store of value," said RBS Morgans senior trader Luke McElwaine. 'The reality is a lot of these producers have very high costs of production. It gets to the point where some of them will struggle to be profitable given a lower than expected gold price."
Spot gold has fallen 18.7 per cent this year, which has been matched by a torrid run for goldminers. In 2013, Newcrest shares have lost 41.7 per cent, St Barbara 70.1 per cent and Kingsgate 56.6 per cent.
"I don't think it reads as a huge positive for the gold price, in the sense that no tapering [by the Fed] doesn't really substantiate a cause for a much higher gold price, unless you have the view that US data continues to soften," said UBS resources analyst Jo Battershill.
Difficulties for goldminers will continue to arise once tapering occurs, as cost pressures increase due to lower margins from gold sales.
"We have a baseline price assumption - $US1200 per ounce - through 2015," said Moody's senior analyst Matthew Moore. "If gold prices drop below our baseline, we expect pressure to increase on [goldminers'] credit profiles."