Fool's Gold Report: Metals Soar As Gold Reclaims $1,300; Will Goldcorp Yield to Yamana?

Tuesday restored some confidence to gold investors, as gains across the precious metals markets reflected a rise in tensions on both the geopolitical and the macroeconomic fronts. Even with the secession of Crimea from Ukraine, the nation still has a large pro-Russian faction that supports further ties with Russia, especially in the eastern part of the country. Moreover, the European Central Bank appears less likely to provide fresh policies to stimulate economic growth, and that led the euro to climb against the dollar, which often helps gold rise. As a result, the SPDR Gold Trust (NYSEMKT: GLD  ) gained almost 1% today. But mining stocks did even better, with the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) climbing 2.5% even as the ongoing drama between Goldcorp (NYSE: GG  ) and Yamana Gold (NYSE: AUY  ) over Osisko Mining and its Canadian Malartic mine continues to play out.


Canadian Malartic mine. Source: Osisko.

On the rise
June gold futures climbed almost $11 per ounce Tuesday, settling at $1,309.10 and helping the SPDR Gold Trust post its sizable gain. May silver futures rose a more modest $0.15 per ounce, but that was enough to get back over the $20 mark to settle at $20.06. Platinum regained much of its losses from yesterday, although palladium's gains still left it down for the week.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,309, up $12

Silver

$20.07, up $0.21

Platinum

$1,435, up $15

Palladium

$774, up $12

Source: Kitco. As of market close.

The connection between gold and the currency market is strong, as when foreign currencies gain against the dollar, the price of gold in terms of those foreign currencies gets pressured downward. To relieve the pressure, gold will often rise in U.S. dollar terms, reaching a new equilibrium that will match up demand from buyers in countries around the world.

Lately, there've been a number of issues that are having an impact on the dollar. In Europe, policymakers have been slower to react and support new growth initiatives, and the failure of the European Central Bank to reduce rates has led the dollar to fall against the euro. Meanwhile, investors expected Japanese policymakers to come up with stimulus measures to offset the impact of a rise in the country's consumption tax, but so far, they've resisted doing so, and that has led the yen to climb sharply against the dollar as well. As a result, today's increase is far less impressive in euro or yen terms than it looks to U.S. investors.

Done deal or no deal?
The prospect of rebounding gold prices has reawakened the mergers and acquisitions market among gold miners, and that's part of what's driving Market Vectors Gold Miners ETF up more sharply than bullion. The example of Osisko Gold and the fight between Goldcorp and Yamana to pick up lucrative gold mining assets on the cheap is a great example of how competitive the M&A situation could become if mining companies project further upward momentum for gold.

Goldcorp made a hostile bid for Osisko earlier this year, seeking to take full control of the company and its promising Canadian Malartic mine in Quebec. Osisko resisted the proposed deal, though, arguing that its assets were worth more. In just the past week, Osisko entered into a deal of its own, selling a 50% stake in its assets to Yamana. Unlike the Goldcorp bid, Yamana's deal preserves Osisko as a separately run business. Today, Osisko CEO Sean Roosen said that Goldcorp would probably simply walk away from its takeover attempt rather than seeking to raise its bid, given the extent to which it would have to increase what it pays in order to beat out Yamana.

Even if the Goldcorp deal falls through, gold mining stocks will likely see continued M&A interest, and that will be instrumental in their fight to sustain further share-price increases. After last year's plunge in the Market Vectors Gold Miners ETF and in mining stocks generally, cheap companies could make promising takeover candidates -- but only if they can remain profitable at prevailing bullion prices.

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