Gold Miners Falling, NST Share Price Down 6% (ASX:NST)

Gold Miners Falling, NST Share Price Down 6% (ASX:NST)

Major gold miners are down today.

At time of writing, the Northern Star Resources Ltd [ASX:NST] share price had dropped by 6.16%, Saracen Mineral Holdings Ltd [ASX:SAR] by 6.12%. Both Evolution Mining Ltd [ASX:EVN] and Newcrest Mining Ltd [ASX:NCM] are also down by 3.58% and 2.70% respectively.

Why are gold miners down today?

The price of gold fell back below US$1,700 overnight. It has since somewhat recovered and it’s trading at US$1,703.26 at time of writing.

At the beginning of the week, gold prices were trading close to the US$1,740 mark, but have been falling as optimism on economies reopening increases.

Gold prices may have fallen, but they are still trading at some of the highest levels we have seen in a while, as you can see below.

AUD and USD Exchange Rates Impacting Gold Price

Source: Bloomberg

Year to date, gold has returned 12.09% in US dollar terms.

The COVID-19 pandemic has closed the global economy and we are already feeling the repercussions. The US has had 40 million unemployment claims since the outbreak, and unemployment has risen to 14.7%. In Australia, 600,000 people have lost their jobs.

Yet even as the real economy is collapsing, optimism is sieving into the markets. The ASX 200 is trading close to 6,000 points. In the US, the S&P 500 has recouped much of the close to 35% drop it suffered in March…

Investors are piling into more risk…

…Even when companies are looking at a future of lower earnings and a bleak economy.

Why?

There is the idea that central banks will keep flooding liquidity into the system even as the economy falls off a cliff. So far, the US Federal Reserve has lowered rates and applied a range of emergency lending measures.

In an interview with Bloomberg yesterday, former Federal Reserve Bank President William Dudley said the Fed actions to keep credit flowing are rewarding risky behaviour:

People who have high-yield debt that’s outstanding, a lot of times that’s happened by choice. So for the Federal Reserve to intervene and support those asset prices, is basically creating a little bit of moral hazard in the sense you’re encouraging people to take on more debt.

We had a number of players in these last few months that have essentially been bailed out by the Fed: Hedge funds that were invested in cash Treasuries, and short Treasury futures those entities unwind what turned out to be a bad trade.

What could happen next?

There is a real disconnect between the markets and the real economy.

At some point, something will have to give, and it’s when things turn sour that people jump into gold.

These are plenty of good reasons why investors should own gold today.

In an exclusive interview, bestselling author and Wall Street insider Jim Rickards defends gold and makes a compelling case for owning gold today.

You can access this free report here.

Best,

Selva Freigedo