Fool's Gold Report: Gold Gives Up Some Ukraine Gains, but Palladium Soars

Just as the conflict between Russia and Ukraine boosted the precious-metals markets yesterday, today's news that tensions appeared to be on the decline between the two countries led to a reversal of fortune for gold investors. April gold futures dropped $12 per ounce to $1,338, sending the SPDR Gold Shares (NYSEMKT: GLD  ) down 1.2%, and a $0.26 per ounce drop in May silver led the iShares Silver Trust (NYSEMKT: SLV  ) to a similar percentage decline. Yet palladium was a source of strength among the metals, and mining stocks didn't produce huge declines, with the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) falling just three-quarters of a percent.

Metal

Today's Spot Price and Change From Friday

Gold

$1,335, down $16

Silver

$21.14, down $0.27

Platinum

$1,456, up $1

Palladium

$759, up $13

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

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

Why gold is holding strong
Despite today's disappointing losses for gold investors, it's notable that gold didn't drop as much as it rose Monday. Even though the fear of outright war between Ukraine and Russia has decreased, the Crimea is still a powder-keg that could lead to future escalations if conditions warrant. Moreover, with many of the structural issues that led to unrest in the Ukraine in the first place still unresolved, there's no assurance that the crisis will end without further violence and conflict.

More importantly, gold's gains started well before the Russian/Ukrainian situation arose, and so it's only natural that a reversal of tensions between the two countries wouldn't lead to a complete collapse in gold prices. After such a huge decline in gold prices during 2013, industry participants are still sorting out the impact of those lower prices on their production. As the market strives toward a new equilibrium, gold will likely stay volatile, but further gains certainly aren't out of the question.

Finally, on the mining side, other geopolitical issues are at play. Both Newmont Mining (NYSE: NEM  ) and Freeport-McMoRan Copper & Gold (NYSE: FCX  ) jumped more than 2% today, as the companies wait for a decision from the Indonesian government concerning a dispute about their copper production there. New rules governing exports have threatened the economic viability of Newmont and Freeport operations in Indonesia, but hope that the government might reverse itself could lead to further gains if the companies win a reprieve from the rules.

Can palladium climb higher?
Meanwhile, palladium's gains show the emerging supply issues coming from labor strife in South Africa. Moreover, with Russia also being a potential supplier of platinum and palladium, any economic sanctions against the Eurasian giant could have an even bigger impact on supply, leaving companies such as Stillwater Mining and North American Palladium as some of the only suppliers unaffected by near-term issues.

Yet demand will also play a key role. Cold weather has led to poor auto sales, and with the auto industry representing a key user of palladium, weaker demand could prevent prices from rising too much higher.

In the end, precious-metals markets will likely remain turbulent in the near future, as a combination of global economic and political issues keeps traders on their toes. It'll take a long time for the situation on the Black Sea coast to resolve itself, and until it does, gold will be attractive to some risk-averse investors as a perceived safe haven.

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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 March 05, 2014, at 4:06 AM, Metal wrote:

    The Commerce Ministry of India on Tuesday raised the issue for relaxing the gold import duty with the finance ministry as stringent regulations have opened route for uncontrollable smuggling.

  • Report this Comment On March 05, 2014, at 8:20 AM, TigerPack1 wrote:

    Yesterday's palladium 2% price increase was a "break-out" move from a 1-year downtrend line.

    The "soaring" price is on deck now. This morning's quote is up considerably already.

    People may call me crazy, but a double to $1500US an ounce for palladium is quite possible in 2014, as serious odds exist for almost NO mine supply coming out of S.Africa and Russia in 4-6 weeks. Palladium's demand is very inelastic and a double in price will not slow the automakers much. I believe it was Ford that infamously locked in $1500 an ounce years ago in the last palladium panic situation at a long-term peak - losing $1 billion in the process.

    2001 was last oversized spike in palladium...

    http://www.smmbc.ca/22-ford.htm

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