Fool's Gold Report: Precious Metals Fall Along With Stocks; Miners Plunge

Gold fell even though the stock market extended its recent declines, with mining stocks taking the brunt of the hit.

Jan 27, 2014 at 7:27PM

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.

Gold continued to disappoint those who turned to the yellow metal as a safe haven against trouble in the stock market, as precious metals dropped across the board despite declines of another half-percent in the S&P 500. Spot gold fell $12 per ounce to $1,257, while silver prices fell $0.22 per ounce to $19.69. ETFs tracking the metals saw above-average volume, with the SPDR Gold Shares (NYSEMKT:GLD) dropping 1.1% and the iShares Silver Trust (NYSEMKT:SLV) down 1.4% on the day. Platinum-group metals suffered even bigger declines on a percentage basis, with platinum down $20 to $1,407 per ounce and palladium falling $12 per ounce to $721.

Gold And Silver

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

Two different dynamics were at work today in driving gold prices: the Federal Reserve and the turmoil in emerging markets. A currency crisis in the emerging world would ordinarily be a positive for gold, as investors in those countries would look to gold as a safer store of value. Yet today, the sentiment among gold investors was that with the troubles largely limited to small countries like Argentina and Turkey, the Fed is unlikely to slow the pace of its tapering of its quantitative easing program unless a potential threat to the U.S. economic recovery emerges. At this point, investors see the odds of such a threat as being relatively low, and that hurt the flight-to-safety argument for gold.

The Market Vectors Gold Miners ETF (NYSEMKT:GDX) dropped much more substantially than bullion prices, falling 3.3%. Most of the major mining stocks were down between 2% and 4% today, having their normal magnified reaction to falling gold prices. With earnings reports coming in the near future, it'll be important for investors to look at individual companies to see if they're keeping pace with their peers. Even though gold stocks often trade roughly in unison, operations advantages and disadvantages can make some stocks smarter picks than others.

Gold investors must keep their eyes on the Fed this week, but the health of emerging-market stocks is also important. Given the extent to which many emerging markets rely on natural resources like precious metals for their prosperity, problems in the emerging world could lead to more difficult times for those who invest in those metals.

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