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.
One of the primary drivers of the long bull market in gold from the late 1990s to the early 2010s was the trend toward lower interest rates and easier monetary policy. So it shouldn't be any big surprise that when new Federal Reserve Chairwoman Janet Yellen gave comfortingly dovish testimony to Congress today in setting out her vision for monetary policy, both the Dow Jones Industrials (^DJI +2.19%) and precious-metals prices would respond favorably. The Dow closed the day up 193 points, nearing the 16,000 level once more. But gold prices reached their best levels in months, with April gold futures jumping almost $16 per ounce to finish above $1,290. Meanwhile, March silver gained almost $0.07 to $20.18 per ounce. Spot prices performed similarly well, driving the SPDR Gold Shares (GLD +1.51%) to a 1.2% gain and the iShares Silver Trust (SLV +4.41%) to rise about 0.8%.
|
Metal |
Today's Spot Price and Change From Yesterday |
|---|---|
|
Gold |
$1,291, up $16 |
|
Silver |
$20.21, up $0.15 |
|
Platinum |
$1,382, down $1 |
|
Palladium |
$717, up $2 |
Source: Kitco. As of 4 p.m. EST.
What we learned from the Yellen story today
Most investors believed the new Fed chair would follow in the footsteps of her predecessor, tending toward the less hawkish side of the spectrum and demanding substantial progress on the economic front before taking accommodative monetary policy off the table. But in particular, Yellen directly addressed the weak economic data we've seen in recent weeks, taking the measured approach of refusing to read too much into the information in isolation. Yet she clearly has the Fed ready to take further action if what at first appear to be aberrant reports turn out to be the precursor of longer-term trends that could threaten the economy.
Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.
Indeed, it's that willingness to take action that likely has gold investors most excited. Moreover, even as the market gets used to the tapering of quantitative easing, investors are getting more secure in the notion that actual increases in the federal funds rate aren't likely for some time, and that could help support the ability of gold investors to finance their bullion purchases cheaply.
Miners are loving the Fed
If bullion traders like Yellen's testimony, mining-stock investors love it, with the Market Vectors Gold Miners ETF (GDX +4.30%) soaring another 3.7% and hitting levels last seen in October. With gold on the rise, miners are getting more optimistic that they can start profiting from the major cost-cutting measures they have taken.
Moreover, leaner mining companies could actually make disproportionate gains from further rises in bullion prices. For instance, Newmont Mining (NEM +2.68%) said this afternoon that it had completed the sale of its Midas mine in Nevada to Klondex Mines, getting more than $83 million in cash and assumed surety obligations. Newmont will also get 5 million warrants on Klondex stock that extend over a 15-year period, allowing Newmont to reap the benefits of any gains from Klondex's success with the mine and its other operations. Strategic moves like these to shed noncore assets should help companies like Newmont operate more efficiently in a gold recovery.
With earnings on deck, investor attention could turn away from macroeconomic factors briefly. In the long run, though, the speed with which the Fed eventually takes away its policy accommodation will play a major role in defining the direction the gold market moves in the future.
