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Fool's Gold Report: Did the Fed Just Kill Gold's Bull Run?

By Dan Caplinger – Feb 19, 2014 at 6:50PM

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Find out how the Fed's latest minutes made gold investors less enthusiastic about the future, even after a strong performance so far in 2014.

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.

The gold market always keeps an eye on the Federal Reserve and other key central banks around the world, so today's release of minutes from the Fed's last monetary-policy meeting was an important event for gold investors. With signals that it would take a huge disruption to stop the Fed from tapering its bond-buying activity, precious-metals markets reacted negatively, with bullion prices extending their losses from earlier in the day. The SPDR Gold Shares (GLD 1.28%) fell 0.9% on the day, while silver's more substantial drop sent the iShares Silver Trust (SLV 4.45%) falling 2.4%.

Metal

Today's Spot Price and Change From Yesterday

Gold

$1,311, down $12

Silver

$21.54, down $0.43

Platinum

$1,412, down $8

Palladium

$731, down $3

Source: Kitco. As of 5:30 p.m. EST.

What the Fed said
In general, the Fed minutes didn't give investors any big surprises. The members of the Federal Open Market Committee agreed that no major revisions were necessary to the statement, but many believed that small modifications could help make the policy releases more effective. Proposals tended to focus on the interplay between keeping inflation near the Fed's 2% target and the Fed's stated goals with respect to employment. Some analysts noted the level of debate on issues as potentially being divisive, but jumping to that conclusion seems premature at this point.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

Largely ignored in the gold market, though, was a report from the International Monetary Fund that mentioned "significant downside risks" to global economic growth. The IMF was generally optimistic about a pickup in economic activity worldwide, with expectations of improving global growth from 3% last year to 3.75% this year and 4% in 2015. Overall, the report did its best to provide a balanced view of economic conditions, and the mere mention of potential downside wasn't enough to encourage safe-haven buying.

Mining stocks did even worse than bullion, with the Market Vectors Gold Miners ETF (GDX 3.20%) falling more than 3%. On the earnings front, silver miner Hecla Mining (HL 8.78%) fell almost 5% after releasing its fourth-quarter results. A small adjusted net loss of less than a penny per share was in line with what investors had expected to see, but revenue growth of 41% was less than the roughly 50% increase that shareholders had hoped for. Even though the company's key Lucky Friday mine is back at full production strength, expectations for 9.5 million to 10 million ounces of silver production and 180,000 ounces of gold production for 2014 didn't encourage investors to add to the gains Hecla has enjoyed during 2014.

Yamana Gold (AUY 3.80%) fell 3% after cutting its quarterly dividend from $0.065 per share to $0.0375. Revenue sank by nearly a third, and Yamana reversed a year-ago profit as a result of massive impairments related to the drop in metals prices. Yet bulls took heart in the fact that the company still expects to boost its overall production in 2014. If gold prices can rebound, then Yamana's relatively low cost structure could help it benefit more than some of its peers.

Gold investors should continue watching the economy. If prices start dropping more significantly, it could lead to a further flight by investors who've been chasing gold's impressive performance to start out 2014.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Yamana Gold Stock Quote
Yamana Gold
AUY
$5.46 (3.80%) $0.20
Hecla Mining Stock Quote
Hecla Mining
HL
$5.45 (8.78%) $0.44
iShares Silver Trust Stock Quote
iShares Silver Trust
SLV
$20.43 (4.45%) $0.87
SPDR Gold Trust Stock Quote
SPDR Gold Trust
GLD
$164.81 (1.28%) $2.08
Market Vectors Gold Miners ETF Stock Quote
Market Vectors Gold Miners ETF
GDX
$29.05 (3.20%) $0.90

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

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