Ground Breakers: Gold stocks punished as bullion falls on rate rise fears

Gold hits lowest selling price in 2.5 years as inflation and rate rises bite
ASX gold sector cops a 4.5% hit, led by Northern Star and Newcrest
Commbank expects gold futures to trade between US$1600-1700/oz over next year

All our fears on rate rises have been realised so far, and it isn’t getting any easier after another strong inflation report out of the US this week.

Gold fell 1.5% overnight to a little over US$1660/oz, breaking the back of the US$1700/oz resistance the price of the traditional safe haven metal has been trading around in recent weeks. That’s its worst selling price in 2.5 years.

The commodity is known to flip viciously on the whim of traders, and remains healthy in Australian dollar terms at a tick under $2500/oz.

But it was not the signal Aussie gold bugs wanted to see. The All Ordinaries Gold sub-index is down a frightful 4.46% today.

Painful stuff.

Northern Star Resources (ASX:NST) and Newcrest Mining (ASX:NCM) are among the miners licking their wounds, down 4.15% and 3.33% respectively.

Capricorn Metals (ASX:CMM), one of the top gold stocks so far in 2022, lost its lustre, falling 9.23%, while De Grey Mining (ASX:DEG) and Gold Road Resources (ASX:GOR) fell 6.85% and 6.57% respectively.

Also in the dog house were Regis Resources (ASX:RRL), Silver Lake (ASX:SLR), West African Resources (ASX:WAF) and a host of others.

Where is the upside here?

One positive is that with gold’s slips over 2022 to date, much of the dip seems to be priced in, with the market already expecting the US Fed’s Funds rate to increase another 200 points to 4.25-4.5%.

Commbank mining analyst Vivek Dhar says gold futures are at their lowest level since April 2020, not long before a bull run sent gold prices to record highs of US$2060/oz in August that year.

He said the Big Bank sees gold futures trading in the US$1600-1700/oz range over the next year “given our new call on the Fed Funds rate broadly mirrors market expectations,” he said.

“More specifically, we see gold futures averaging $US1650/oz in Q4 2022, before dipping to $US1625/oz in H1 2023, before rising back up to $US1650/oz in Q3 2023.

“The risk that prices fall below this range will likely depend on US inflation outcomes tracking above expectations in coming months. The risk that prices rise above this range will likely depend on US inflation falling faster than expected.”

It is a more temperate projection than the bull case outlined by some gold miners at Diggers and Dealers, who think inflation will remain outside the control of the US Fed and other central banks.

Evolution Mining (ASX:EVN) boss Jake Klein said at the Kalgoorlie gabfest in August he expected gold to lift to between US$2000-3000/oz on safe haven demand, expressing doubt that rate rises would contain inflation.