Fool's Gold Report: Gold Fields, Allied Nevada Plunge As Gold Keeps Falling

Gold's gains in the first quarter of 2014 were unexpected, given the terrible performance of the yellow metal during 2013. But more recently, gold has proven unable to hold onto most of its gains, and today's drop sent miners Gold Fields (GFI 0.41%) and Allied Nevada Gold (NYSEMKT: ANV) to big losses. With gold having proven unable to regain the $1,300 level, investing in SPDR Gold (GLD -0.19%), Market Vectors Gold Miners (GDX 0.21%), and other bullion and mining related investment vehicles looks a lot less promising than it did just a week or two ago.

How metals moved today
The worst declines in precious metals came from gold, where the June contract fell $10.50 per ounce to $1,283.80. By contrast, May silver escaped with only a $0.04 per ounce decline to $19.75, and platinum and palladium actually managed to regain some of their lost ground from last week.

Source: Kitco. As of market close.

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

What's especially surprising for the gold market was the fact that comments from the Federal Reserve's chairwoman failed to inspire any kind of rebound in prices. One big element that helped turn gold's rally into a rout was Janet Yellen's answer in her post-monetary-policy-decision press conference that she thought the Fed could raise interest rates as soon as the middle of next year. Yet even though Yellen reiterated the need for the Fed to keep interest rates low for an extended period in order to support the weak job market, precious-metals investors didn't take that as a sign to be bullish about gold's long-term prospects. Similarly, weak inflationary figures in Europe that should give the European Central Bank room to add stimulus through its own monetary policy initiatives failed to push gold higher either.

Among mining companies, prospects have grown dimmer, with the Market Vectors ETF falling 2% amid much larger declines of 5% for Gold Fields and 7% for Allied Nevada. For Allied Nevada, the drop reflects the amplified volatility that small mining companies have compared to larger players for every given movement in the price of gold.

For Gold Fields, though, the release of the company's 2013 integrated annual review only reminded investors of the poor environment for the entire mining industry last year. Gold Fields noted in its report that the company's margin between all-in costs and gold prices received narrowed from $119 per ounce in 2012 to just $74 per ounce last year. That margin compression shows just how levered Gold Fields and similarly situated gold miners are to changes in bullion prices. Even with massive cost-reduction efforts, Gold Fields will have to cut costs below its all-in $1,312 per ounce figure for 2013 in order to turn a profit at current prices.

With so many positive factors for gold having reversed themselves at least for the short-term, it's unclear how the precious metals will regain their luster. Investors will have to wait for the next policy decisions from central banks around the world to gauge demand for gold and other metals as investment plays.