Fool's Gold Report: 1 Year Later, Gold Still Feels Echoes From Its Crash

Despite geopolitical tension and other ordinarily bullish factors, gold dropped Tuesday, a year after its precipitous $130 one-day plunge.

Apr 15, 2014 at 6:35PM
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A year ago, the gold market shocked the investment world with a single-day plunge of $130 per ounce that pronounced a definitive end to what had been a 12-year-old bull market for the yellow metal. Although today's declines in the gold market were less severe, they were nevertheless significant, sending SPDR Gold Shares (NYSEMKT:GLD) down almost 2% and pushing mining stocks down as well. Yet the real question facing Newmont Mining (NYSE:NEM), Barrick Gold (NYSE:ABX), Goldcorp (NYSE:GG), and other mining companies is whether the failure of gold to post a substantial bounce from those low levels marks the end of the long-term hopes for gold investors.

Abx
Pascua-Lama mine. Source: Barrick Gold.

How metals moved today
June gold futures plunged Tuesday by $27.20 per ounce to settle at $1,300.30, pacing the similar losses in the SPDR Gold Shares ETF. Silver showed similar losses, with May silver futures falling $0.52 per ounce to $19.49. Losses in the platinum-group metals were equally sharp, as even the favorable fundamentals that have supported platinum and palladium recently failed to have a positive impact today.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,303, down $23

Silver

$19.56, down $0.41

Platinum

$1,434, down $28

Palladium

$790, down $18

Source: Kitco. As of market close.

Precious metals markets failed to act in the way they had been in the recent past, with ongoing tensions between Ukraine and Russia failing to give any short-term support to the market. Inflation data in the U.S. continued to show controlled price increases, which undoubtedly weighed somewhat on the market, but those price trends have existed for years and show no signs of changing anytime soon.

Thinking back to the bull's last roar
But the apparent lack of rational response today reminds investors to take a longer-term approach to the gold market. A year ago, gold suffered the climactic day of its huge sell-off, with a $130 plunge that took away any remaining dreams that investors had that gold's long bull-market run would continue. Even though bottom-fishing investors started stepping in to look for bargains, the ensuing year has been a painful one for gold, with prices falling even further since this time in 2013.

Since then, gold-mining stocks have also remained beaten down, as companies have had to adjust their expectations to fit the new reality. Barrick Gold has fallen another 3% even after the plunge, with falling prices eventually leading the company to shutter its promising Pascua-Lama mine on the Chilean/Argentine border. Goldcorp has had to deal with similar problems at its El Morro mine in Chile, with court actions to extend the suspension of the mine. Moreover, throughout the sector, companies have cut their gold-reserve values to reflect the low-price environment.

Entire nations are responding with moves calculated to hold onto dwindling revenue. In Indonesia, Newmont Mining faces export restrictions that could eventually threaten its ability to sustain production at key copper and gold mines. Although Newmont Mining has worked hard to try to resolve its problems and get the right to export ore concentrate to international smelters, the episode shows just how severe the impact has been on countries that grew accustomed to the rising prices of metals.

One year later, gold remains in an uncertain position. But investors can weigh the uncertainty in precious metals against that in other markets and make their own decisions about which risk profile fits their preference.

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