Fool's Gold Report: Bullion and Miners Soar, But Will Central Banks Keep the Party Going?

On Wednesday, the precious-metals complex finally acted in concert, moving higher together in stark contrast to its more fragmented behavior earlier this week. Short-term traders pointed to tensions between Russia and Ukraine and signs of further deceleration of China's economic growth as justification for the move, especially as prices of crude oil and copper fell below key levels of $100 per barrel and $3 per pound, respectively. April gold futures jumped almost $24 per ounce to close at $1,370.50, while May silver followed suit with a $0.54 per ounce gain to nearly $21.36 per ounce. Those moves sent SPDR Gold Shares (NYSEMKT: GLD  ) up about 1.5% and the iShares Silver Trust (NYSEMKT: SLV  ) up more than 2%. The mining complex showed even greater strength, as the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) climbed 3%. Platinum and palladium also posted substantial gains, making it a clean sweep for precious metals today.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,367, up $18

Silver

$21.30, up $0.41

Platinum

$1,470, up $11

Palladium

$772, up $6

Source: Kitco. As of 4:30 p.m. EST.

Why is a weak global economy good for gold?
Central banks have done everything in their power to try to stimulate economic growth in the years following the 2008 financial crisis. Most central banks around the world have taken extraordinary measures to ease monetary policy, not only exhausting traditional methods of encouraging greater levels of economic activity but also developing new, unprecedented alternatives in hopes of driving faster growth. The result for precious metals was that cheap money made it easier to invest in non-income-producing assets such as bullion, helping to push prices higher.

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

By contrast, the moment that the Federal Reserve even started contemplating slowing the rate of its bond purchases under quantitative easing, gold and other precious metals suffered. Again, the threat of removing liquidity from the financial system made gold the initial target for selling, as trying to finance gold purchases as long-term interest rates started to rise became a less attractive proposition.

Now, though, gold is reacting to the possibility that despite all the best efforts of central banks across the globe, key economies are still unhealthily weak. The specter of deflation in Europe has some calling for even lower interest rates in the eurozone, which would confirm the likelihood of easy monetary policy on the continent for several years at least. Meanwhile, China's continuing slowdown could also spur interest in gold, especially as the nation begins to experience debt defaults that could reverse what many see as a troublesome asset-price boom there.

Bullish on mining
Mining stocks were up strongly, with solid gains throughout the list of major players. Endeavour Silver (NYSE: EXK  ) was among the best performers, rising almost 11% and completely reversing losses that followed the silver miner's Monday earnings report. Despite a rise in silver production by more than half and a near-doubling in gold production, net losses widened and the company's adjusted earnings fell by more than 70% from year-ago levels. Yet a 21% drop in all-in costs helped offset big drops in realized silver and gold prices. Moreover, most mining stocks will have just one more quarter of poor comparisons to get through before finally hitting the April 2013 slump. As a result, you can expect the mood among miners to get even better in the not-so-distant future.

Looking forward, gold investors should watch the Federal Reserve's meeting next week to see whether it acknowledges some of the economic difficulties in other parts of the world. Although few expect a change of policy from the Fed, any indication of concern could make gold markets move even further in response.

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Read/Post Comments (7) | 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 March 13, 2014, at 5:48 AM, NURJB wrote:

    I'll take some of that $100 per barrel gold!

  • Report this Comment On March 13, 2014, at 9:26 AM, TMFGalagan wrote:

    @NURJB - Thanks for the typo catch. Fixed now!

    best,

    dan (TMF Galagan)

  • Report this Comment On March 13, 2014, at 10:09 AM, TigerPack1 wrote:

    http://finance.yahoo.com/q/ta?s=DBA&t=1y&l=on&z=...

    Food rise getting OUT OF CONTROL in February-March 2014. +22% in 8 weeks now, WITHOUT much decline in the U.S. Dollar.

    Dollar is tanking this morning. We could start to see 1% or better DAILY rises in food prices going forward. Food prices are the most universally felt and appreciated of all commodities. I have not met a human being on the planet (8 billion?) that does not eat food.

    The PONZI money printing fraud story is going to get extremely difficult to sell to the masses on the planet soon, as a good idea for anyone, much less "everyone." The clock is striking midnight for fictional FED Cinderella story. Protect yourself NOW before it is too late and your life savings and work in U.S. Dollars evaporates.

  • Report this Comment On March 13, 2014, at 10:17 AM, TigerPack1 wrote:

    MEMO TO YELLEN, ET AL:

    If you want to keep the PONZI scam going into 2015, you have to undertake an emergency rate increase of 1% or 2% next week, and crash the stock market.

    Ah forget it! The markets will crash the Dollar and stocks and spike commodities, no matter what you do - at this last stage of nuttiness.

  • Report this Comment On March 13, 2014, at 12:53 PM, TigerPack1 wrote:

    I hate to say it, but I side with Sprott in his $2000US an ounce call for gold in late-2014 or early 2015. I would have said no way a year ago.

    I have been projecting/expecting a very large advance in the gold price to really kick in, either in March or April. I have been telling people I know about the coming pop in precious metals and its schedule since November. Anyone that would listen, that is.

    Gold, silver, platinum and palladium have all made significant long-term trend breaks to the upside the last 4 weeks. The meat of the price advance is just starting about now. I expect more than one $100+ up day in gold soon, and another $300-$600 price gain from here into year's end.

    China navy news about confronting a Philippine ship carrying arms and troops yesterday is QUITE SCARY. It may be Russia and China have a secret military agreement to move on U.S. interests simultaneously, with a plan to destroy the Dollar's reserve currency status through Treasury sales after we retaliate (or threats to do so limiting our reaction on the ground). It could be Ukraine moves by Russia are putting U.S. PONZI economy scheme into checkmate position. Prepare investment insurance and hedges accordingly.

  • Report this Comment On March 13, 2014, at 1:47 PM, TigerPack1 wrote:

    Purely from a tactical, military strategist angle, "divide and conquer" ideas by Russia and China right now are probably the most opportune they have been EVER. Think about it - a weak President with low public approval ratings, one that has shied away from at least 4-5 fights and wars during his presidency (Iraq, Afghanistan, Syria, Iran, and others), with defense spending cuts a necessity from out-of-control government spending for years, with a fragile U.S. economy and the Treasury "dependent" on free money from China and Russia to fund the PONZI scheme.

    Putin is definitely seizing the moment, carpe diam, with the power vacuum in Ukraine to take whatever resources and land he wants. What if Chinese leaders either see the chance to take the islands back they so desire, or have an agreement to do so with Russia - with U.S. forces so depleted and split across the globe protecting at least 50 nations right now. Will either Russia or China have a better chance to act with their armed forces than right now?

    With the threat of destroying our economy by selling trillions in Treasury debt hanging over the U.S., will this president act to fight back, and potentially ruin the U.S. economic empire, with all the ramifications for standing up?

    Many of us have been screaming for years that our economic and political and military future is being wrapped into some cockamamie FED money printing scam, that will only end badly, one way or another. We are actually MORE vulnerable now on a wide range of interests and issues to outside attack and abuse than ANY time since the end of WW2.

    Think about it.

    There is no way for U.S. to retaliate in the Ukraine and Chinese island disputes without making life miserable for Americans living at home! Our options our ZERO, just like our interest rates despite rising inflation for everything we buy. Thank you BEN and ALAN, CLINTON, BUSH, OBAMA for short-sighted policies and helping to end the American empire, it was a good run I guess.

    The FED did a great job for 5 years of BRIBING everyone to look the other way at what the ramifications of free money would be for the largest debtor nation in history, as along as stocks and bonds are rising in price, what is the downside? What happens when stocks and bonds are collapsing as the drums of war are sounding all around U.S.???? Heaven help U.S.

  • Report this Comment On March 13, 2014, at 2:28 PM, TigerPack1 wrote:

    What's really depressing is the FED has run out of ammunition. At the first hint of MORE money printing in this situation, the Dollar collapses and commodities skyrocket, which will REQUIRE more stock and bond declines and put EVEN more pressure on the FED for radical interest rate INCREASES, which will crash stocks and bonds EVEN MORE.

    We are at the end of the PONZI scam line.

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