Why Harmony Gold Mining Stock Plummeted by Almost 12% This Week
Key Points
Investors became cautious about gold amid the rising likelihood of Fed interest rate increases.
Gold isn't an interest-bearing asset, so it's often sold off in times of rate rises.
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A late-in-the-week rally in the gold price couldn't save Harmony Gold Mining (NYSE: HMY) stock from sliding into the red over the past few days. The precious metal sank over the course of the five trading days, putting the hurt on mining companies that traffic in it. Although Harmony Gold is not exclusively focused on its namesake asset, it remains strongly associated with it.
According to data compiled by S&P Global Market Intelligence, the company's shares fell by nearly 12% across the week.
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The gold bugs were bugged
A major development shaking the gold price -- and not in a good way -- was a new about-face forecast from Bank of America Global Research. On Wednesday, the lender's analysts published a note speculating that the Federal Reserve (Fed) will raise key interest rates three times this year to tame inflation.
Image source: Getty Images.
That was a switch from the bank's previous prediction of no interest rate moves at all by the end of 2026.
If this new analysis is accurate, an interest rate hike or several will make interest-bearing assets notably more attractive to investors. And, conversely, reduce the hunger for ones that don't pay interest, like precious metals.
Harmony Gold was therefore a prime target for a sell-off, since, like other peers, it focuses entirely on mining, extracting, and producing precious metals.
Inflationary thoughts
That gold rally was the result of the latest monthly U.S. personal consumption expenditures (PCE) price index, published on Thursday by the government's Bureau of Economic Analysis. The update, showing that May inflation rose by 4.1% year-over-year, broadly met expectations.
As this was generally in line with expectations, and it's the Fed's preferred inflation gauge, investors became slightly less worried about potential rate increases -- hence the uptick in precious metals prices.
Personally, I'd be cautious with gold and other precious metals, as well as the equity of companies that mine such materials. I think we're in the midst of a bear market, given the stubbornness of inflation and the increasing likelihood that the Fed's rates will defy gravity soon.
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Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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