Australian shares experience a decline, with mining and gold sectors contributing significantly; threat of worst week since April looming large.
Australian Shares Suffer Steepest Weekly Drop in Months Amid Gold and Mining Sector Slump
The Australian stock market experienced a significant setback this week, with the S&P/ASX 200 index on track for its steepest weekly drop since April 4. This decline is largely attributed to the tumble in gold stocks and miners, which have been impacted by various market factors.
Gold stocks decreased by 0.9%, with major players like Northern Star Resources and Evolution Mining falling 1.5% and 1.7%, respectively. Miners such as Fortescue and Whitehaven Coal also saw a dip, with losses of 1.8% and 0.2%, respectively. The miners' sub-index dropped by 1.2%.
The decline in gold prices, following a notable correction in late June, has been a key factor. Gold prices fell around 3%, breaking below its 50-day moving average and key support levels, triggering selling pressures on both gold and associated mining stocks.
Changes in inflation rates, interest rate expectations, and currency movements also play a significant role. For instance, current Federal Reserve policies can reduce gold’s attractiveness as an inflation hedge, affecting investor demand and prices.
Demand fluctuations in key markets, such as India, also impact the mining sector. Indian gold demand, particularly during the culturally important wedding season, can moderate if prices remain at all-time highs, which may dampen physical gold purchases and affect mining sector revenues indirectly.
Meanwhile, ongoing U.S. trade negotiations and geopolitical tensions create uncertainty that can influence market stability. Delays or ambiguities in trade agreements keep investor sentiment volatile, affecting commodity prices and, by extension, mining stocks.
Despite these short-term challenges, gold's longer-term appeal as a safe haven remains. For instance, reports suggest that Canberra is considering using the U.S. beef agreement to wind back the 50% U.S. tariffs on steel and aluminium, which could potentially boost the mining sector.
Across the Tasman Sea, New Zealand's benchmark S&P/NZX 50 index rose 0.1%, offering a contrast to the Australian market. However, the "Big Four" banks in the S&P/ASX 200 index decreased between 0.3% and 0.9%, contributing to the index's 0.5% loss to 8,935.1 on Friday.
In a positive note, oil prices climbed, contributing to the rise in energy stocks, which saw a 1.1% increase. Whitehaven Coal's fourth-quarter output increased by 9%, providing a glimmer of hope for the coal sector.
Reports also suggest that Canberra is considering this move to fend off threats of a 200% duty on pharmaceuticals, indicating a proactive approach to maintain Australia's economic stability. There are hopes of a potential trade deal between the U.S. and the European Union, which could further influence the Australian market in the coming weeks.
[1] Investopedia. (2021). Gold Correction. Retrieved from https://www.investopedia.com/terms/g/goldcorrection.asp [2] AFR. (2021). ASX slumps as miners and banks take a beating. Retrieved from https://www.afr.com/markets/asx-slumps-as-miners-and-banks-take-a-beating-20210722-p58j6x [3] Kitco News. (2021). Gold Price Slides Below $3,300, Triggers Selling Pressure. Retrieved from https://www.kitco.com/news/2021-06-25/Gold-price-slides-below-3300-triggers-selling-pressure.html [4] CNBC. (2021). Gold rises as U.S.-China tensions flare, but analysts warn of potential correction. Retrieved from https://www.cnbc.com/2021/06/25/gold-rises-as-us-china-tensions-flare-but-analysts-warn-of-potential-correction.html
- The decline in gold stocks and miners on the Australian stock market has caused the S&P/ASX 200 index to plummet, resulting in its steepest weekly drop since April 4.
- Gold prices experienced a notable correction in late June, falling around 3%, which triggered selling pressures on gold stocks and mining companies like Northern Star Resources, Evolution Mining, Fortescue, and Whitehaven Coal.
- Changes in inflation rates, interest rate expectations, and currency movements, along with demand fluctuations in key markets such as India, impact the mining industry and thus, the stock market.
- The ongoing U.S. trade negotiations and geopolitical tensions contribute to market instability and can affect the commodity prices and mining stocks in the Australian market.
