Gold and silver are eternally attractive metals, but lately they haven't been ideal investments. On recent declines in the prices of the two, SSR Mining (SSRM +6.21%) -- which mines both metals -- saw its stock price decrease by more than 3% on Tuesday.
The yield problem
The rout in precious metals started last Friday, just after the federal government's Bureau of Labor Statistics released its latest monthly employment report. The striking feature of this digest was the 172,000 new jobs created in May, far higher than the consensus estimate of 80,000. Immediately, and understandably, this led to widespread speculation that the Federal Reserve is more likely to raise than cut interest rates in the near future.
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This triggered a sell-off in bonds, since higher rates mean higher interest paid on future issues. When a bond's price falls, its yield rises. That makes these yield-bearing investments especially attractive when compared to nonyielding investments -- gold and silver don't pay coupons, after all. Subject to that dynamic, precious metals have generally been on the downswing since Friday.
Broadly speaking, companies that mine precious and base metals are pure plays. What's more, mining is a capital-intensive activity with many fixed costs. Therefore, movements in gold/silver/etc. prices can and will disproportionately affect the performance of the SSR Minings of this world.
NASDAQ: SSRM
Key Data Points
Diminished shine
Many might consider these latest price movements corrections, as both gold and silver had sustained bull runs that culminated in all-time highs at the beginning of this year. SSR Mining was indisputably a beneficiary of this, to the point where it has sufficient financial "padding" to withstand a downturn. Still, I think the possibility of rate hikes will rise, if anything, so now might be a good time for current stockholders to sell out of their positions.
