What happened

Shares of Yamana Gold (NYSE:AUY) slumped 18.4% in the month of January, according to data provided by S&P Global Market Intelligence. That's a pretty rough start to the year for the gold stock after its sparkling 44.6% gains in 2020.

So what

Yamana Gold shares started to drop alongside the price of gold after Jan. 6 when Congress finalized then President-elect Joe Biden's victory. The development fueled hopes of a big fiscal stimulus to ride out the economic crisis triggered by the COVID-19 pandemic, which sent the stock markets higher while prices of precious metals fell. Precious metals like gold are typically considered safe-haven assets during uncertain times, which is why the gold price -- and most gold stocks -- surged double-digits in 2020 when global economies were roiled by the pandemic.

With gold under pressure, it was hard for Yamana Gold shares to hold up through the month. A higher gold-price environment is imperative for Yamana to earn higher revenue and profits.

A falling price trendline with gold nuggets in the background.

Image source: Getty Images.

It didn't help that Yamana's preliminary fourth-quarter and 2020 numbers released later in January failed to impress investors. Yamana's full-year production of 901,155 gold equivalent ounces (GEOs) fell short of management's own expectations, partly because of lower Q4 production at its Cerro Moro mine in Argentina as a result of COVID-19-related restrictions. Cerro Moro is Yamana's key growth mine and holds the key to its production growth at low costs.

Moreover, Yamana's gold-production forecast also came in lower than its original guidance provided at the beginning of the year. Again, its production and cost outlook are based on price assumptions of precious metals, so the present weakness in the price of gold may have adversely impacted outlook. Yamana now projects 2021 and 2022 gold production to be 862,000 ounces and 870,000 ounces, respectively, or roughly 1.3% and 1.7% lower than original guidance.

However, two points are worth noting here: First, Yamana extended its outlook through 2023 and expects to produce 889,000 gold ounces in the year. Second, and more importantly, Yamana's GEO outlook remains unchanged at one million GEOs over each of the next three years.

Now what

Fluctuations in metal prices are part and parcel of Yamana Gold's business, and investors may want to pay greater attention to the gold company's prospects. Yamana's gold production is rising, its operating cash flow last quarter hit multi-year highs, and its debt is declining. That's a great combination to have in any gold stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.