Gold loves a crisis, which is why ongoing troubles in Europe helped push its price back through the $1300 an ounce level earlier today but, to see a gold rush magnified by a currency shift, take a look at what’s happening in Australia.
Down there a gold boom has broken out thanks to the effect of the falling Australian dollar on the gold price with the country’s gold miners also enjoying the benefits of cheaper fuel which is one of the biggest costs, especially in open pit mines.
The triple-whammy of a rising U.S. dollar gold price, falling Australian dollar and cheaper diesel fuel which is used in most mine-site equipment has boosted the Australian stock exchange gold index by 58% over the past 10 weeks.
Some of Australia’s leading gold mining companies have outperformed the index with Newcrest, the biggest ASX-listed gold stock, rising by 61% and the most successful explorer and deal-maker, Northern Star, rising by 137%.
All Up Since November
The lift-off point for Australian gold was November 6 last year, the day after the U.S. dollar gold price bottomed at $1142/oz. On that day Newcrest shares were selling at A$8.51 on the ASX. Northern Star was at A91c. The exchange rate was US87.33c and Brent crude oil was at $83 a barrel.
Earlier today, Newcrest shares closed at a 12-month high of A$13.74. Northern Star hit a 12-month high of A$2.17 (but closed at A$2.16). The exchange rate was US82.09c and Brent crude was selling for $48.34.
With most other resource stocks stuck in a downward spiral, led by those exposed to coal, iron ore and oil, the re-awakening of the gold sector is the first dose of good news for investors in the resource sector of the Australian stock market for more than a year.
Gold Is An Old Friend Of Australia
From an historical perspective gold is playing a familiar role, having previously saved the country’s recession-hit economy in the 1890s, and the depression-hit 1930s, and while it’s too early to forecast a continuation of the revival trend the signs are interesting.
Last week, gold reacted positively when the Swiss National Bank took evasive action from what could be a burst of volatility in Europe’s common currency, the euro, as the region’s central bank moves closer to a long-awaited policy of quantitative easing (money printing).
An announcement from the European Central Bank (ECB) is expected sometime tomorrow.
On Sunday, Greece holds a national election with anti-Europe political parties expected to win and to see through their promise to quit the euro zone, an event which could trigger more exits.
European Troubles Are Driving Investors Into Gold
Whatever decisions emerge from the ECB and Greece the uncertainty factors are boosting the case for gold as a safe haven investment, and one which has become more appealing since last week’s changes in Switzerland made a bank account in that country even more expensive.
As events in Europe drive the gold price higher Australian gold miners are enjoying the higher cash flows on conversion as the Australian dollar slides, and their operating costs do the same thing thanks to cheaper fuel.
The currency effect alone, if forecasts of the Australian dollar slipping to US70c (and possibly lower) prove correct, could have a dramatic effect on the Australian gold price.
Using the price earlier today of $1303/oz the Australian price at US70c rises to A1861/oz, close to an all-time high.