Fed rate hike pressure fades Goldgroup Mining bounce

Goldgroup Mining shares (NYSEMKT: GORO) jumped more than 6% in early Thursday trading before retreating to a 0.6% gain by 11:11 a.m. ET. The move followed a sell-off in the previous session triggered by the U.S. Federal Reserve raising interest rates for the first time in three years. Investors are now rethinking that initial reaction as the impact of the new policy stance settles in.

The Federal Reserve increased rates by 0.25%, setting the new range at 3.75% to 4%. Chairman Kevin Warsh stated that inflation is too high and has been for too long. This adjustment implies that mortgages will become more expensive, credit card interest rates will rise, and bond yields will go up. The shift gives savers a stronger incentive to allocate funds to bonds and bank accounts, which pay interest, rather than gold, which does not.

Metal Prices and Corporate Risk

Gold sold off yesterday, falling to $4,333 per ounce, its lowest price in a month. The metal bounced this morning but is currently up only 0.2% at $4,397 an ounce. The bounce is already fading. Logically, with interest rates likely to keep rising to combat inflation, gold prices should resume falling. Analysts polled by S&P Global Market Intelligence think Goldgroup might earn a profit this year, but falling gold prices could derail that prediction.

Goldgroup has lost money for five straight years. The company is one of the smallest gold miner stocks on the market. If gold prices do fall, the company is not in a strong financial position to deal with that outcome. The operational setup remains fragile because the firm lacks the buffer to absorb sustained pressure on metal prices. The next confirmable milestone is whether the stock can hold its ground against the fading metal rally. Watch the session close to see if the 0.6% gain holds or if the retreat accelerates.