Fool's Gold Report: Gold Falls Below $1,300 as Stock-Market Fears Subside

Gold fell back below the $1,300 level on Thursday, as a lack of interest among bullish gold investors failed to provide any carry-through buying after substantial advances earlier this week. One big problem for investors has been a lack of interest in mining stocks, as the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) has behaved badly in recent days regardless of which direction bullion prices moved. With signs of economic strength in certain areas of the world, many investors have to more closely consider companies that have exposure to both precious and base metals. Freeport-McMoRan Copper & Gold (NYSE: FCX  ) , Newmont Mining (NYSE: NEM  ) , and other miners that can profit from rising prices of copper and other industrial metals could be better long-run plays than pure gold miners if a global recovery picks up steam.

How metals moved today
June gold futures dropped Thursday, settling down $9.60 per ounce to $1,293.90. Silver was much less volatile, with prices easing just $0.04 per ounce to $19.60. Platinum was the big loser on the day, with palladium also falling in concert with its platinum-group sibling.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,296, down $7

Silver

$19.62, down $0.01

Platinum

$1,410, down $24

Palladium

$794, down $5

Source: Kitco. As of 4 p.m. EDT.

The trouble with mining stocks
Gold-mining stocks provided investors with huge gains during the yellow metal's bull market, with the leveraged nature of their shares multiplying returns far above what bullion offered. Last year, that dynamic played out in reverse, with the Market Vectors Gold Miners ETF and individual mining stocks falling much more sharply than gold prices.

More recently, though, that ETF has shown almost a disregard for bullion prices. In many cases, mining stocks have fallen even when gold rose, yet they often added to losses when gold fell:

GDX Chart

Market Vectors Gold Miners ETF data by YCharts.

Admittedly, part of this dynamic stems from the huge gains that gold miners posted during the first two months of 2014, as the Market Vectors Gold Miners ETF dramatically outperformed bullion. But from a longer-term perspective, gold investors are less certain whether owning shares of mining companies now will result in investment gains even if the gold market eventually recovers. With some miners having had to resort to dilutive secondary offerings to raise capital, and with ongoing challenges from high development costs and unexpected delays wreaking havoc on certain players, the days of easy money in the gold market are gone.

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

That means miners with base-metal exposure could actually fare better if the economy keeps recovering globally. Copper prices are at relatively low levels, and that has helped push shares of Newmont Mining and Freeport-McMoRan Copper & Gold downward. But even though some specific issues in China could hold copper down somewhat, better economic conditions will inevitably increase demand for it and other industrial metals. As a result, those investors who have grown tired of gold's sluggish performance might do better to wait for a cyclical upturn in industrial-metal demand by looking for stocks that will do well in such an environment.

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  • Report this Comment On April 17, 2014, at 5:37 PM, GaryDMN wrote:

    Just wait until the market discovers there is a shortage of physical gold, due to Asian demand. Physical gold has been moving from west to east and the western countries no longer impact the demand for gold. Just about every producing gold mining, with proven reserves stock prices will skyrocket, as they try to capitalize on demand. All the recycled gold that was collected when gold was at its peek have worked their way through the channel too.

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