Gold Plunges: Australia the New Safe Haven

Gold rout continues in the Asian trading session and currently trading between the 1071 and 1083 price level, the precious metal reached a new low in 5 years on Monday when it touches 1071.73. The situation keeps getting worse without a possible solution in sight, gold has declined for 10 straight days, the longest losing streak for the metal since September 1996.

Many analysts have attributed the decline in gold to the strong U.S dollar which hurt commodities measured in dollars. Most overseas investors find it too expensive due to the strong American dollar, hence, a drop in demand. On Thursday dollar dropped against major currencies, which enable gold to tick up 0.2 percent to $1,093 an ounce.

In Australia the story is different, while spot gold tumbled 16 percent in the past year, the precious metal’s price in Australian dollar has surged about 8 percent. S&P/ASX All Ordinaries Gold Index of 21 Australian miners have gained 12 percent so far this year as the benchmark Philadelphia Stock Exchange Gold and Silver Index slumped 31 percent.

The suppliers in Australia, the second largest producer of Gold in the world are benefiting from selling the metal for a strong U.S dollar while costs of production are denominated in weaker local currency. Australian dollar plunged to 6 year low on Friday.

William Kaye, a Hong Kong based owner of The Pacific Group Ltd. said Australian miners are profiting from the weaker Australian dollar against the strong U.S dollar, this would make Australian miners attractive to investors. Australia’s largest producer, Newcrest Mining Ltd., said its margin increased 13 percent in the year through June as it increased output.

A Sydney-based senior economist at Westpac Banking Corp., Justin Smirk, said investors may remain wary of weaker bullion prices because there is no guarantee that they will get a movement in the Aussie dollar that will equal the movement of the rise or fall of the gold price.

On Friday, Australian dollar fell 0.8 percent to 72.94 U.S. The Australian gold index dropped 5.4 percent as gold hit the lowest since 2010. The Australian index rose 2.6 percent on Thursday as Philadelphia Index fell 4.7 percent.