Fool's Gold Report: Palladium Tops $800; Stillwater Climbs While Hecla Falls

On Friday, the gold market largely treaded water, sustaining its gains, but failing to add to them despite another day of sharp losses for the stock market. But even though moves in gold and silver were minimal, palladium soared, climbing through the $800 per ounce level, and making many traders bullish about the platinum-group metal's prospects for the future. Palladium specialist Stillwater Mining (SWC) scored gains as a result, but most gold and silver miners followed the lead of the stock market, with Hecla Mining (HL) suffering substantial losses, while Newmont Mining (NEM -0.03%) led major gold miners lower.

How metals moved today
June gold futures edged down $1.50 per ounce, to $1,319, closing the week with a solid gain. May silver futures dropped a more substantial $0.145, to settle just below $19.95 per ounce, helping to contribute to the losses in Hecla Mining's shares and those of other silver miners.

Source: Kitco. As of market close.

Yesterday, the stock market plunged, with the Dow finishing the day down 267 points, and helping to lift gold's prospects. But on Friday, even though the Dow suffered another triple-digit decline, gold failed to make another major move upward, instead succumbing to the general tendency in the market against what many perceive to be higher-risk assets in favor of fixed-income securities like bonds.

But palladium's jump above the $800 mark was supported by many of the same factors that pushed the stock market downward. As the U.S. economy has performed better, demand for automobiles has risen, and that, in turn, has helped drive hunger for palladium, which is used in catalytic converters in vehicles. At the same time, supplies of palladium have been under threat for weeks from strikes in South Africa, which is a major producer of the metal. With few signs of any progress, the potential for supply disruptions is growing. Moreover, Russia is the other major world producer of palladium, and with tensions in Ukraine on the rise, market participants don't have much confidence in the market having access to Russian palladium beyond the immediate future.

Source: Stillwater Mining.

Stillwater Mining climbed almost 1.5% Friday, bucking the trend among most precious-metals miners. Stillwater Mining no longer solely produces platinum and palladium, but it's still the only U.S.-based producer of platinum-group metals, and it relies on the health of the palladium market for its profits. With recent operational improvements that have improved ore grades, Stillwater Mining has plenty of room to rise, especially if palladium prices keep climbing further.

For the most part, though, mining stocks followed the broader stock market lower. Hecla Mining led the silver complex down with a 5% decline, giving up most of its gains from earlier in the week on a favorable production report. Silver's recent underperformance has investors nervous about the white metal, and Hecla Mining and other silver mining stocks could use a lasting rebound above $20 per ounce to boost their margins and build profits. Newmont Mining fell 2% on a generally down day for gold miners, giving back most of its own positive momentum from earlier in the week after it got an analyst upgrade. Newmont Mining could use strength not only in gold, but also copper, in which it has a substantial stake in Indonesia through its interest in the Batu Hijau mine.

Next week, gold and other precious metals will likely move based on geopolitical events over the weekend, as well as economic signs gleaned from the rising volume of earnings reports. If stocks rebound and create a new sense of investor security, then gold could quickly give up its gains from the past week.