Please ensure Javascript is enabled for purposes of website accessibility

Has This Market Winner Lost Its Luster for Good?

By Dan Caplinger - Feb 26, 2021 at 5:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Even as tech stocks rebounded, one part of the financial markets plunged.

Friday was a topsy-turvy day for the stock market, marking a fitting end to a tumultuous week. Although the Dow Jones Industrial Average (^DJI 0.03%) suffered huge declines, the drop in the S&P 500 (^GSPC 0.01%) wasn't nearly as bad. The Nasdaq Composite (^IXIC -0.30%), meanwhile, saw a nice push higher to rebound from outsized losses earlier in the week.

Index

Percentage Change

Point Change

Dow

(1.50%)

(470)

S&P 500

(0.48%)

(18)

Nasdaq Composite

+0.56%

+73

Data source: Yahoo! Finance.

Yet arguably, the biggest news on Friday happened outside the stock market. Other financial markets saw big moves, with bond yields reversing lower, oil prices giving back about $2 per barrel to $61.50, and cryptocurrencies remaining under pressure. One key part of the commodities market saw the biggest hits, and that has some observers questioning whether gold has lost its shine.

Not all that glitters is gold

Gold prices were under pressure again on Friday, building on recent losses. Gold bullion prices fell $46 per ounce, dropping to $1,729. That might not seem like a huge move, but it marked the lowest level for the yellow metal in eight months.

Gold bullion bars and a chart with a jagged yellow line.

Image source: Getty Images.

The relationship between gold and other financial markets is complex. Although bond yields eased lower on Friday, they've been pushing sharply higher since the beginning of the year. Higher bond yields do two things to hurt gold: They tend to boost the value of the U.S. dollar in which many major gold futures contracts are valued; and they make it more expensive for investors and speculators to finance purchases of the precious metal. Both of those factors played a role in pulling gold down.

To put the move in perspective, it was only last August that gold prices pushed above the $2,000 per ounce mark. Bullish investors called for a return to the same speculative frenzy that caused a 12-year bull market for the yellow metal. With concerns about the state of global monetary policy and rock-bottom interest rates, the gold market saw considerable support to keep prices higher. Now, things look a lot different, and some wonder if gold will see a repeat of the bearish conditions of the mid-2010s that pushed prices down almost all the way to $1,000 per ounce.

Mining for value

It shouldn't be surprising that gold-related stocks  also lost ground. Mid-sized miners like Eldorado Gold (EGO -1.53%) and Pretium Resources (PVG) led the way lower, falling almost 10%. But even some bigger players took heavy damage. Gold and silver streaming specialist Wheaton Precious Metals (WPM 0.34%) finished lower by more than 5% on the day.

For some gold investors, that might seem like a good opportunity to go bargain hunting. But even though many gold miners are down substantially from their peaks last summer, they're still at elevated levels compared to where they traded in recent years. For instance, Wheaton is down by nearly 40% from its peak levels in July and August 2020, but it's up more than 20% from where it started 2020. There's no guarantee gold stocks won't see lower levels before they rebound, especially if bonds and the U.S. dollar continue their recent trends.

Wait and see

It's far too early to conclude that the upward move in gold prices that we've seen over the past several years has come to an end. However, with the prospects for a more adverse environment for precious metals gaining traction, it would be prudent to look at your portfolio and be aware of the potential risks if you have outsized exposure to gold and silver.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wheaton Precious Metals Corp. Stock Quote
Wheaton Precious Metals Corp.
WPM
$41.58 (0.34%) $0.14
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,261.90 (0.03%) $8.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,901.36 (0.01%) $0.57
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,354.62 (-0.30%) $-33.88
Eldorado Gold Corporation Stock Quote
Eldorado Gold Corporation
EGO
$8.39 (-1.53%) $0.13
Pretium Resources Inc. Stock Quote
Pretium Resources Inc.
PVG

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.