Fool's Gold Report: Silver Falls 3% As Bull Run Pauses

Gold and other precious metals have performed surprisingly well in 2014, holding their gains even after stocks bottomed out and started regaining lost ground this month. But Wednesday, the rise in precious metals came to an abrupt end, with investors pointing to a jump in the value of the U.S. dollar and increasing signs of geopolitical stability as root causes for the pullback. April gold futures settled down almost $15 per ounce at $1,328, while March silver futures fell an even sharper $0.71 per ounce, dropping to $21.09. Those drops sent the SPDR Gold Shares (NYSEMKT: GLD  ) and iShares Silver Trust (NYSEMKT: SLV  ) down 0.9% and 2.9% respectively, with the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) falling more than 1% as silver miners in particular dropped substantially.

Metal

Today's Spot Price and Change From Yesterday

Gold

$1,330, down $12

Silver

$21.22, down $0.68

Platinum

$1,424, down $12

Palladium

$730, down $4

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

Is this the beginning of a bigger pullback?
Long-term investors aren't always familiar with the short-term forces that affect markets, but if you're going to invest in precious metals, it's important to pay attention to these short-term dynamics. With such a big move upward in such a short period of time, many traders were waiting for a pullback as an opportunity to take profits and look for potentially lower entry points to reestablish positions in gold and silver.

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

Today's data from the U.S. housing market might well have been the excuse traders needed. After such dour housing news last week, today's jump in new-home sales of 9.6% in January was much larger than expected and contradicted the negative assessments of the state of the housing industry. Moreover, with Fed chair Janet Yellen delivering delayed testimony to Congress tomorrow, precious-metals investors likely anticipated that the new-home sales report would serve as a valuable data point in support of the Fed's planned tapering of quantitative easing.

At this point, most investors have a relatively gloomy assessment of the macroeconomic background affecting precious metals. What will be more important is whether mining companies react to fundamentals and start rebuilding their businesses based on new lower price points.

Miners: time to perform
For the most part, moves in mining stocks mirrored bullion-price changes, with silver miners taking the brunt of the damage today. With most of the industry's earnings reports already having taken place, investors will turn their focus to whether the company can deliver on their guidance for 2014. Fluctuations in gold and silver prices will have an impact on financial results, but production figures are dependent largely on operational considerations that aren't as sensitive to price changes in the short run.

Nervous investors who have positive long-term views on gold and silver need to accept minor setbacks like today's as par for the course in the precious-metals markets. Creating an investing strategy that can withstand whipsawing markets is critical to make sure you don't lose your resolve -- regardless of what particular stance you take in precious metals.

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Comments from our Foolish Readers

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  • Report this Comment On February 27, 2014, at 8:36 AM, TigerPack1 wrote:

    Predicting short-term dynamics is even tougher. If Russia invades Ukraine, we get $100 or $200US an ounce rise in gold quickly, perhaps over a period of hours of market trading.

    You want to own gold now from inevitable money printing problems in the financial system appearing and the high odds of political/military world changes as a result of FED induced PONZI scams the globe over.

    I will stick with long-term trend in gold and silver to move markedly higher in U.S. Dollars. There is nothing you or I can do to stop it. If you cannot beat em (the FED), join em in recognizing PONZI forever scheme and effects.

    I bought more physical silver yesterday at the short-term sale price.

  • Report this Comment On February 27, 2014, at 12:48 PM, TigerPack1 wrote:

    http://finance.yahoo.com/q/ta?s=DBA+Basic+Tech.+Analysis&amp...

    Basic food prices in USA up again today, some 3% on week so far. That's a good monthly gain! And this is going on BEFORE the U.S. Dollar has even turned lower.

    I hope nobody in America eats food - if they did, they are in for a shock in a month or two when the 14% 2014 increase in basic foodstuff commodities starts showing up in their grocery bill.

    We could easily see +20% Year over Year food price gains by April, if we get another 5% or so increase in commodities the next 4-5 weeks. That works out to about +5% for the typical grocery bill.

    Then we get to deal with a sharp drop in the Dollar soon and another +5% to +10% increase in your food bills by the end of the year. YIPPIE! Hurray for PONZI and FED policy driving America into the ditch, while the rich remain unaffected largely (they don't have to eat I hear) and their stock/real estate wealth roars higher!!!

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