Gold Stocks Plunged: What You Need to Know

By Brian D. Pacampara | More Articles
October 19, 2010 | Comments (6)

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of several gold stocks -- both large and small -- plunged in early trading Tuesday, as gold prices sank on a rallying U.S. dollar.

So what: Small-cap gold miners are getting hit particularly hard on gold's decline (about 210 basis points), with Banro (AMEX: BAA ) , U.S. Gold (AMEX: UXG ) , New Gold (NYSE: NGD ) , and Vista Gold (AMEX: VGZ ) all down about 6%. Of course, bigger names haven't exactly escaped the pain, as Yamana (NYSE: AUY ) , Goldcorp (NYSE: GG ) , and Kinross (NYSE: KGC ) have shed roughly 4%.

Now what: With U.S. Treasury Secretary Timothy Geithner pledging late Monday that the government will look to "preserve confidence" in the dollar, it's no surprise that gold is taking a beating this morning. Although today's plunge might offer fiat paper-fearing investors a nice entry point, I'm skeptical about jumping on the gold bandwagon. With so many dividend-paying blue chips sitting at verifiably cheap prices, buying into red-hot, tough-to-value gold doesn't seem like the best move Fools can make.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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Read/Post Comments (6) | Recommend This Article (12)

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Report this Comment On October 19, 2010, at 12:14 PM, PeyDaFool wrote:

Good point, Brian.
I'll just change your last sentence and add a few words of truth, here:
"With so many dividend-paying blue chips sitting at verifiably cheap prices, buying into red-hot, tough-to-value gold [while we're nearing the height of the gold bubble] doesn't seem like the best move Fools can make.
Report this Comment On October 19, 2010, at 1:37 PM, langco1 wrote:

the big hedge funds that drove gold prices to ridiculous levels have started selling to lock in year end gains.as this selling increases expect gold prices and stocks like apple to see huge declines in share prices.....
Report this Comment On October 19, 2010, at 5:00 PM, Venerability wrote:

BOO!
Double BOO!
And triple BOO!
And shame on Motley Fool for posting a non-analysis more worthy of the Yahoo boards.
Report this Comment On October 19, 2010, at 5:17 PM, AvianFlu wrote:

In my view Fiat dollars have a lot in common with Fiat automobiles at this point in time.
Still holding gold...
Report this Comment On October 20, 2010, at 8:44 AM, IslandDave wrote:

It's true that precious metals were due for an adjustment, and it appears China's decision provided the catalyst for it. PM prices may even drift further downward a bit. However, the long-term trend upward for PMs will likely resume in short order. Continued fiat currencies devaluation by design makes it difficult to see any other long-term outcome. The PM market isn't for the weak-kneed, to be sure. It's a different kind of animal, is volatile and can test one's resolve. But the "bubble" is still a long way from bursting unless there's a dramatic global shift in economic policy. Having a slice of one's portfolio in PMs therefore makes good sense, and this latest dip could have provided a nice entry (or accumulating more) opportunity.
Report this Comment On November 01, 2010, at 4:17 AM, strelna wrote:

Gold is not nearly as 'tough to value' as the dollar. I simply have no idea how little the dollar will be worth two, five or ten years out and that will certainly affect the real, verifiable value of those lovely blue chips if they are US ones, despite their overseas earnings.

However, risk lies in the possibility that when politicians have brought the bond market to rebellion and thoroughly devalued the currency, their next brilliant idea will be to confiscate your gold a fixed price. You would be wrong to think that price will be set by the market.

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