Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
In general, gold and the stock market have established an inverse relationship recently, and so in light of today's rebound from Monday's carnage in stocks, weakness in the gold market would be understandable. But for the most part, precious metals limited their losses today, with spot gold prices settling down just $3 per ounce to $1,255 and helping keep losses in the SPDR Gold Shares (GLD 1.84%) to just 0.3%. Even better, silver prices bucked the downward trend, as spot silver rose $0.17 to $19.51 per ounce, sending the iShares Silver Trust (SLV 2.69%) up 0.75% on the day. Platinum and palladium both posted declines, though, with platinum falling $8 per ounce to $1,371 while palladium lost $1 per ounce to $699.
One thing U.S. investors need to remember is that China has holidays linked to its Lunar New Year going on, and that has dampened trading activity in the key Asian market. But another reason for the choppy trading in precious metals is that investors no longer have strong conviction about how the Federal Reserve will respond to some recent data that directly affects the U.S. economy. Even though past concerns about emerging markets might have posed little threat to the domestic economy, the Fed won't be able to ignore sluggish manufacturing data if recent reports turn out not to be one-time aberrations based on unusually cold weather. Sustaining quantitative easing at current levels rather than tapering further could send gold prices rising in the short run, although much would depend on the impact on the stock market from such a move.
Silver's gains, though, suggest that precious-metals investors aren't sold on the bearish manufacturing story. Silver has industrial applications and therefore responds to rising levels of manufacturing activity to a much greater degree than gold, and so relative strength in silver versus gold could signal investors' belief that the U.S. economy is in better shape than some fear.
Mining stocks saw solid gains, with the Market Vectors Gold Miners Index (GDX 3.41%) rising 1.25%. A rise in merger and acquisition activity has boosted interest in mining stocks, and last night's deal between Goldcorp (GG), Barrick Gold, and Silver Standard Resources (NASDAQ: SSRI) is just the latest example. Under the deal, Goldcorp and Barrick agreed to sell their respective interests in their Marigold joint venture in Nevada to Silver Standard for $275 million. The move shows how mining companies big and small are adjusting their property portfolios to reflect their respective strengths, and with mining assets getting into the best hands, it bodes well for the long-term prospects of the industry.