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Fool's Gold Report: Metals Drop Despite Ukraine Tensions; Can Gold Hold $1,300?

By Dan Caplinger - Mar 26, 2014 at 7:11PM

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Geopolitical concerns rattled the stock market but didn't pull gold higher. Find out why.

One of the reasons cited for gold's advance earlier this year was the tension between Russia and Ukraine. When gold started falling more recently, one thing analysts pointed to was the lack of escalation following Russia's annexation of Crimea. Yet even though fears of further aggression have started to come into investors' minds, gold again failed to respond positively. In the futures markets, April gold fell $8 per ounce to $1,303.40, while May silver dropped $0.20 per ounce to $19.78. Platinum was hardest hit of any of the metals, falling more than 1%, and spot gold and silver also fell, pulling SPDR Gold Shares and iShares Silver ( SLV 0.77% ) down roughly 1%. The Market Vectors Gold Miners ETF ( GDX 0.76% ) took the biggest hit, falling 4% as optimism for the sector largely evaporated.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,306, down $6

Silver

$19.74, down $0.27

Platinum

$1,400, down $18

Palladium

$779, down $7

Source: Kitco. As of market close.

An increasing disconnect
One big problem that gold investors face is separating out short-term trading moves from longer-term trends that will help define the future direction of the gold market. On one hand, economic conditions in the U.S. continue to improve, with today's durable goods report being just the latest sign of strength in the domestic economy. Yet overseas, deflationary pressure in Europe and sluggish economic activity in China have convinced some investors that central banks in those parts of the world will take action to try to spur further growth, which would ordinarily represent a positive for gold by making it less expensive to own for investors there.

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

Similarly, geopolitical issues don't always translate to expected movements in precious metals. As traders jockey for position in the Russia-Ukraine conflict, anything short of outright declared aggression will leave investors uncertain about the next move for gold. That has left uncertain investors taking gains off the table.

Miner moves
Among mining stocks, most major gold miners posted losses of 3% to 4%. Goldcorp ( GG ) fell 3.7% after it completed its sale of shares of Primero Mining ( PPP ). The company priced its 31.15 million shares of Canadian miner Primero at C$7.20 per share, giving Goldcorp about 224 million Canadian dollars in proceeds from the sale. The move divests Goldcorp's stake in Primero, giving it valuable cash to invest in other potential projects.

Meanwhile, Newmont Mining ( NEM 2.63% ) fell 3.5% amid reports from an official at Indonesia's mining ministry that the copper and gold producer has cut output at its mining operations in the South Asian nation by 70%. With new export taxes having limited Newmont's ability to export concentrate to foreign smelters, Newmont has had to use Indonesia's only smelter and has projected that it might have to cut production eventually once storage capacity within Indonesia is used. For its part, Newmont denied any immediate cuts having been made, but the episode shows how much is at stake as nations try to encourage companies to make value-added refinements to raw materials in-country rather than exporting ore for processing elsewhere.

For gold to hold the $1,300 level, it will rely on investors going back to their usual way of responding to political and financial-market events. For now, it appears that traders are dead-set on reining in gold's advances for the year, and investors might have a tough time fighting that trend in the short run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Primero Mining Corp. Stock Quote
Primero Mining Corp.
PPP
Goldcorp Inc. Stock Quote
Goldcorp Inc.
GG
iShares Silver Trust Stock Quote
iShares Silver Trust
SLV
$20.85 (0.77%) $0.16
Newmont Mining Corporation Stock Quote
Newmont Mining Corporation
NEM
$54.67 (2.63%) $1.40
VanEck Vectors ETF Trust - VanEck Vectors Gold Miners ETF Stock Quote
VanEck Vectors ETF Trust - VanEck Vectors Gold Miners ETF
GDX
$30.69 (0.76%) $0.23

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

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