Fool's Gold Report: Employment Report Sinks Gold, Silver; Freeport, Coeur Plunge

All week, gold investors had looked to the Friday employment report as a potential market-moving event. News that nonfarm payrolls jumped 175,000, better than the 150,000 forecast, sent gold and silver bullion prices lower, and although those losses lessened during the day, the metals still finished lower. April gold futures dropped $13.60 per ounce to settle at $1,338.20, while May silver futures fell almost $0.65 per ounce to close at $20.93. SPDR Gold Shares (NYSEMKT: GLD  ) fell 0.8%, but silver's bigger plunge sent iShares Silver Trust (NYSEMKT: SLV  ) down 2.8%. On the mining front, Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) fell 2.3%, with Freeport-McMoRan Copper & Gold (NYSE: FCX  ) and Coeur Mining (NYSE: CDE  ) posting even worse losses on the day.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,340, down $11

Silver

$20.89, down $0.55

Platinum

$1,478, down $3

Palladium

$778, unchanged

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

Employment and gold
The reason why gold investors were so focused on the employment report was that they wanted to see whether recent signs of economic weakness were merely temporary, or reflected a longer-term fundamental sluggishness in the U.S. economy. In that light, today's jobs figures were strong enough to convince investors that the advance in gold and silver prices so far in 2014 had gotten ahead of itself, especially as it now appears extremely unlikely that the Federal Reserve will make any changes to the course of its withdrawal from its quantitative easing program.

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

Granted, not all of the news on the employment front was good. The unemployment rate actually rose by a tenth of a percentage point, to 6.7%, and past pronouncements from the Fed have indicated a target unemployment rate rather than payroll figures as being the potential trigger for future changes in monetary policy. Moreover, with average hourly wages rising by $0.09, to $24.31 per hour, inflation hawks could argue that wage pressures could be building. Nevertheless, today's numbers disappointed gold investors on the whole.

Mining stock news
Among miners, Freeport fell almost 5% after the gold and copper miner commented on actions from the Democratic Republic of Congo to force miners to ration power. Although Freeport said that its current operations wouldn't see any short-run impact from power rationing, plans to expand its operations in Congo could be in jeopardy if the company can't rely on getting the power it will need. The issue is the latest in a series of international problems Freeport has faced, most notably, Indonesian government restrictions on exports that could eventually force production curtailment at its key Grasberg copper and gold mine.

Meanwhile, Coeur dropped nearly 4%, as silver's drop hit the silver miner even harder than some of its main rivals. Coeur announced that it had priced $150 million in seven-year senior notes, carrying a 7-7/8% interest rate. Although the notes don't have an equity component, and therefore won't dilute shareholders' interest, the addition of new debt to Coeur's balance sheet puts somewhat more pressure on the miner to make the most of future opportunities for growth.

What to watch for next week
Investors should watch what happens in Russia over the weekend. An escalation could bring the geopolitical issue back to the forefront for investors, but any resolution could lead to further declines for gold.

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Comments from our Foolish Readers

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  • Report this Comment On March 10, 2014, at 12:07 PM, TigerPack1 wrote:

    Food prices at the bottom of the commodity chain are UP another +1% today. We are nearing a +20% gain in 7-8 weeks flat.

    If you want to start chaos in America, make every working stiff pay another 10%-20% for his beer and pizza by the summertime. Forget Ukraine! America has bigger problems containing inflation in 2014, without crashing the bond and stock markets.

    http://finance.yahoo.com/q/ta?s=DBA&t=3m&l=on&z=...

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