Until recently, gold was in the midst of a difficult year, to say the least. Things got even worse for the precious metal when the Federal Reserve announced on December 18 that it would trim its stimulus program. The 'taper', as it came to be known, caused gold's sell-off to accelerate. Now, the price of gold has fallen all the way below $1,200 per ounce, representing its lowest level since August 2010.

Along with the dramatic collapse in the price of gold, shares of gold mining companies Barrick Gold (GOLD 1.49%), Goldcorp (GG) and Newmont Mining (NEM -0.12%) got crushed in 2013. While it's tempting for value-oriented investors to want to buy while there's blood in the streets, there's no clear catalyst for future gold prices. As a result, it appears continued caution is warranted when it comes to the gold mining stocks.

Rising interest rates are taking their toll
Clearly, the market sees higher interest rates -- and by extension, a stronger U.S. dollar -- as reason to sell precious metals, including gold. This has resulted in gold's steady decline over the past few years. Since reaching $1,900 per ounce in August 2011, gold has lost roughly 36% since then, and the effects are rippling through the gold mining industry. For instance, Barrick's third-quarter net earnings clocked in at $170 million, down significantly from $580 million in the same quarter last year.

Goldcorp was barely profitable in the third quarter, because prices and production both fell. The company realized an average gold price of $1,339 per ounce in the third quarter, down from $1,685 per ounce year over year. Production fell from the previous quarter, to 637,100 ounces.

Newmont had a decent third quarter, since gold production actually increased. However, its average realized gold price of $1,322 per ounce represented a 20% drop from the prior year quarter, which dragged revenue down by 20%.

Why further profit declines are possible
It seems that in the precious metals space, no miner is immune from cratering gold prices. The situation is made even worse by the fact that as bad as the first three quarters have been, the fourth quarter may be just as bad. That's because gold prices have continued to fall even lower, to levels beneath these miners' average prices realized in the third quarter.

Not only have average realized prices continued to drop, but profits will likely face even more pressure as gold miners rush to cut costs and sell off assets. For example, Barrick Gold has cut costs by $2 billion year to date. Furthermore, Barrick sold various assets totaling $700 million in the third quarter. Likewise, in the third quarter, Newmont sold its investment in Canadian Oil Sands Limited for $587 million, and it's cut spending by $700 million year to date.

On a positive note, Goldcorp management maintains its intention to increase production by 70% over the next five years. To accomplish this, Goldcorp intends to pursue only the highest-margin mining opportunities. Namely, it's focusing mining efforts only on low-risk areas of the world. To this end, more than 40% of its production comes from the U.S. and Canada. This is why management believes the company can produce at least 2.6 million ounces of gold this year, which would represent 8% growth year over year.

Remain cautious on gold miners
Gold prices have gotten crushed this year, and the carnage has accelerated now that the Federal Reserve has decided to taper its stimulus program. While it's always tempting to buy struggling stocks on the prospect of a turnaround, investors should resist that urge. Gold is a commodity after all, meaning its price could always drop further. Interest rates still have a ways to go before they reach pre-recession levels, so the carnage in the gold market may not be over.

As a result, investors should take their cues from management teams, and hold off on buying gold stocks until their underlying business outlooks improve considerably.

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