September Fed rate hike fears look overblown as the probability stands at just 58%, not 90%

Asian gold mining stocks experienced a decline on Monday following a 3% drop in bullion prices on Friday, as hawkish remarks from Federal Reserve Chair Kevin Warsh increased the likelihood of a September interest rate hike. Lingbao Gold plummeted 5.7% to HK$22.34, Zijin Gold International fell 5.4% to HK$152.50, and Zhaojin Mining decreased 2.5% to HK$23.34, while Shandong Gold led the gains with an 8.1% increase to HK$27.58.

Australian miners also suffered losses, with Westgold Resources down 5.1%, Regis Resources down 4.3%, and Northern Star Resources falling 5.5%. The sell-off mirrored gold's own 3% drop on Friday, when Warsh's comments at Jackson Hole heightened anticipation of a September rate increase. Spot gold plummeted to around $4,567 an ounce, a low not seen since August 20, while the dollar strengthened and Treasury yields rose.

Warsh expressed skepticism about inflation improving sufficiently and reinforced that the Fed needed to do more to align price pressures with its 2% target. The prospect of a September rate hike boosted the probability to approximately 58%, up from around 36% previously, dampening demand for gold, which does not yield interest income.

This shift followed an impressive surge for bullion, with gold surpassing $4,600 an ounce and reaching a three-month high of $4,696.18 on August 25, spurred by a weaker dollar, concerns over U.S. fiscal matters, and the Treasury's decision to increase purchases of longer-dated government bonds. For gold miners, the reversal in gold prices jeopardizes their earnings momentum, which had bolstered the sector's recent gains.

Companies with higher-cost operations are particularly vulnerable to shifts in realized gold prices, as revenue declines while many mining costs remain relatively stable. Shandong Gold's significant outperformance serves as an exception, propelled by a robust first-half earnings report. The company reported attributable net profit of RMB3.54 billion, a 26.2% year-over-year increase, while lower operating costs helped maintain margins despite weaker revenue.

The broader regional weakness was evident in the declines of Sumitomo Metal Mining (3.5%), Chifeng Jilong Gold Mining (4.3%), Zijin Mining (4%), and Newmont (3.5%).