Fool's Gold Report: Miners Plunge, but Bullion Holds Gains

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.

Ordinarily, you can expect the price of bullion to move in the same direction as the miners of that bullion, albeit not necessarily by the same amounts. Yet today, mining stocks and metals prices moved in opposite directions, with April gold futures rising more than $4 per ounce to $1,294 and March silver gaining almost $0.17 per ounce to $20.32. That was also enough to send SPDR Gold Shares (NYSEMKT: GLD  ) up 0.1%, even though the iShares Silver Trust (NYSEMKT: SLV  ) fell by the same margin. But the big move of the day was in the MarketVectors Gold Miners ETF (NYSEMKT: GDX  ) , whose shares gave back almost 3.5% today.

Metal

Today's Spot Price and Change From Yesterday

Gold

$1,292, up $1

Silver

$20.24, unchanged

Platinum

$1,399, up $14

Palladium

$724, up $7

Source: Kitco. As of 5:30 p.m. EST.

What's up with gold and down with miners?
For bullion, many investors pointed to positive news from China that suggested that economic activity was on the upswing. A more than 10% jump in export activity in January from the previous year's levels suggested a stronger economy than many thought, and with gold's big plunge in 2013 coinciding with concerned about signs of sluggishness in China's economy, today's news was welcome. Indeed, the fact that platinum and palladium outperformed gold and silver points to the industrial-focused nature of the positive sentiment today.

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

Yet rather than contradicting that thesis, the drop in miners today just represents a check on what has been an extremely strong rally for hard-hit gold mining companies during 2014. To put the loss in perspective, the Market Vectors ETF entered the day up 21% on the year, even though bullion prices had risen only about 8%. Some degree of leverage is appropriate given the economics of gold mining, but unsustainable gains tend to reverse themselves after a while.

Moreover, some astute traders might be hoping to rebuy shares of gold miners at lower prices following earnings announcements in the coming days and weeks. For many miners, results will look particularly ugly, as they won't reflect the 2014 rebound in bullion prices. With many companies having taken steps to shore up their balance sheets and reduce costs, any improvement in the metals themselves could produce real gains.

Investors must prepare themselves for big adjustments downward in reserves, given the drop in bullion prices in 2013. If gold prices recover, though, those reserves will come back and add to profits later. That could help set the stage for an even larger recovery down the road.

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Read/Post Comments (4) | 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 February 12, 2014, at 10:26 PM, Austyn41 wrote:

    Just today I invested my entire account sum in dslv

  • Report this Comment On February 13, 2014, at 9:24 AM, TigerPack1 wrote:

    Dollar's value tanking this morning (Thursday).

    The biggest political upheaval in a nation occurs when food prices rise dramatically. Most of the revolutions in the Middle East and turmoil inside many Asian countries the last few years can trace their origins to large sustainable jumps in basic food prices. The masses do not put up with such for very long, and in the U.S. it may cause more of a stir than the latest "Dancing with Stars" TV voting poll for a change.

    Agricultural prices in U.S. Dollars have risen a good 6%-7% the last 3 weeks. They have gone from multi-year lows as a group to near 9 months highs quickly with only a minor drop in the U.S. Dollar. That works out to a better than 100% annualized increase.

    My biggest worry for American leaders and banksters is that we are beginning a monumental pay-back period for all that lunatic-based money printing taking place since 2008. If the Dollar falls 20%-30% vs. other currencies (50% or more vs. gold and silver), oversized amounts of excess capital floating around the world will swarm into low inventory commodities to "hedge" against inflation. In the process speculator and investor purchases could overwhelm supplies and send prices for nearly every commodity higher by 100% or 200% in 2014. Any effort by the authorities to control speculation will backfire and lead to panic buying of commodities.

    The end result will be a doubling or more in the average working American's grocery and gas bills into year's end. You can imagine the pain, heartache and backlash that will result, both politically and in the streets. Union organized strikes, mass demonstrations, skyrocketing unemployment, all focused on bringing down the 1% WS and Congressional crowd may move from fictionalized zerohedge-like scare articles of the past into our living rooms and neighborhoods.

    Thought of the day! The last thing America can afford is a sharp decline in the U.S. Dollar and oversized spike in commodities. Not a guaranteed outcome this year, but more possible than conventional wisdom today would wager. Wars with Russia over Ukraine or Iran or Syria, or wars with China over Japan, Philippine, S. Korea islands seem like something to worry about. However, a spike in commodities appears the most likely problem to roil our current PONZI based reality (or lack thereof).

  • Report this Comment On February 13, 2014, at 9:26 AM, TigerPack1 wrote:

    Dan, you (MF) may have to hire me to add commentary every day to your gold article! LOL No seriously.

  • Report this Comment On February 13, 2014, at 9:29 AM, TigerPack1 wrote:

    Most of the daily gold articles on the internet are garbage. There are plenty of technical aspects and fundamental changes daily that go unreported for the typical main street investor.

    Dan is doing a wonderful job, and I am sure this effort and readership will improve over time.

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