Fool's Gold Report: So Much for Safe Havens

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

Yesterday, gold returned to its historical role as a safe haven for investors, climbing sharply as stock markets dropped. But today's more than 300-point plunge for the Dow led to only minimal gains in gold prices, and the rest of the precious-metals complex actually posted some fairly nasty declines. The SPDR Gold Shares (NYSEMKT: GLD  ) rose 0.4%, as spot gold prices climbed just $4 per ounce, to $1,269, while silver prices fell by about $0.10, to $19.91 per ounce, sending iShares Silver (NYSEMKT: SLV  ) down half a percent.

The big action in precious metals was in platinum and palladium, which plunged on fears about a drop in demand based on their industrial uses. Platinum dropped $25 per ounce, to $1,427, while palladium fell $10 per ounce, to $733. With concerns about levels of manufacturing activity, the natural question for platinum-group metals investors to ask is whether demand will be sustainable at current levels. Any pullback in auto demand, for instance, could reduce the need for metals purchases to make catalytic converters, a key use of platinum and palladium.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

Traditionally, gold has tended to act as a stronger safe haven in a currency crisis, and currency fears were a big part of what drove stock markets lower today. Record-low levels in the Turkish lira, and continuing drops in the Brazilian real and the South African rand, showed the rising levels of nervousness about the sustainability of growth in emerging-market economies. In that light, gold's tepid gains today suggest that investors are gravitating toward developed-nation currencies rather than the yellow metal as a place to ride out an emerging-market storm.

Among mining stocks, the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) fell by 0.2%, bucking a trend toward higher share prices for the sector. Base-metals plays underperformed precious metals, with Alcoa (NYSE: AA  ) falling more than 5%, and Freeport-McMoRan Copper & Gold (NYSE: FCX  ) giving up 2.7%. Given fears of economic pressure going forward, base metals are arguably more vulnerable to economic disruptions than their precious-metal counterparts, and they've also performed better recently in the hope that an economic recovery would spread from the U.S. across the globe. Now that more recent events have called that theory into question, Alcoa, Freeport, and other producers of industrial metals could continue to underperform in the future.

For gold investors, today's small gains were somewhat disappointing. For gold to resume its bull market, it needs to take better advantage of opportunities like this to pull in money from scared investors in other markets. Otherwise, gold might take a long time to return to its record highs of just a few years ago.

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Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 24, 2014, at 8:16 PM, robertatthebeach wrote:

    Hi Dan,

    First time poster here, but long time trader. Did you miss the heavy naked short selling for the first three hours? And only moderate naked short selling for the rest of the day? Most of the miners were up 2%+ in the first 15 minutes!

    Someone out there does not want gold or miners advancing. But, as usual, it will be a losing battle.

  • Report this Comment On January 25, 2014, at 2:55 PM, harkvasa wrote:

    It is clear to me that if you take 3 to 5 year time horizon, then Gold may climb back to $2,000 per ounce. When that happens, we will have various market commentators say Gold is going to $3,000.

    So, I find that rather than relying on various comments about Gold, it is best to systematically keep investing 10% of assets in Gold to diversify and also to provide security from potential major economic crisis.

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