Gold price slump will likely hit gold shares

Gold price slump will likely hit gold shares

There is often debate about whether the leading gold producers follow or lead the gold price. Throughout 2018, the share prices of the gold producers were the strongest of any mining sector, and the rising gold price, especially in A$ terms, supported the trend. It seemed that the stocks were doing the leading. In recent weeks a number of these companies have shown weakness, testing uptrends in some cases. Apart from the spike at the beginning of the week, it seems another example of stocks leading the commodity price.

At the beginning of last week the tensions between India and Pakistan caused the gold price to spike up to the US$1,350/oz level, but the slump back below US$1,300/oz at the end of the week makes one wonder whether we have just seen a blow-out event. Does this mark the end of what has been a very good period for the gold price, or does it just mean that the playing field has become more volatile?

Given that we were already seeing profit taking in the gold producers before the event, the gut reaction tells us that when the market opens on Monday morning we will see a heavy sell-off in the Aussie market for gold stocks. Whether or not this gathers momentum and downtrend is in order for the foreseeable future is yet to be determined.