Action in the precious metals markets was mixed on Monday, as bullion prices stayed in a relatively tight range, holding onto their spectacular gains over the past week. Yet even as investors in physical metals were content with modest gains today, stocks with exposure to the mining industry saw solid gains, with Silver Wheaton (NYSE:SLW) and Freeport-McMoRan Copper & Gold (NYSE:FCX) leading the major players in the sector higher. Yet investors who've followed the gold and silver markets for a while know that similar gains in the past haven't held up to long-term pressure and question whether things will truly be different this time around.
Global economics, global politics
Gold traded up about $2 per ounce Monday, fetching about $1,317 per ounce. Silver was unchanged on the day, while platinum-group metals didn't move much either. Still, in the wake of huge gains over the past week, today's quiet markets weren't a big disappointment.
The gold market has had a couple of key factors pushing it higher recently. One of the most important considerations is the prospect of outright civil war in Iraq, which has spurred the usual kneejerk safe-haven buying that gold investors have seen before in past conflicts. News over the weekend was mixed, with some reports suggesting that the Iraqi military had retaken border checkpoints with neighboring Syria and Jordan, while rebels seek to shore up their positions both within Iraq and elsewhere in the region. With the level of volatility in the area and its strategic importance both politically and economically, the situation in Iraq isn't likely to resolve itself quickly, and that could support gold prices in the short to intermediate term.
The Federal Reserve has also had a surprisingly positive impact on gold markets recently. Last week's decision from the Fed not to accelerate the lifting of short-term interest rates surprised some market participants, who had pointed to signs of rising inflation and economic strength as potentially giving the central bank flexibility to tighten more quickly than previously expected. But the Fed didn't opt to take advantage of that opportunity, instead reiterating its original timeframe for restoring more normal monetary policy conditions. That emphasis on keeping rates low is positive for gold traders and therefore keeps bullion prices higher.
The rise of mining
Even though Monday's movements in metals prices were limited, players in the mining industry saw much more impressive gains, with Market Vectors Gold Miners ETF (NYSEMKT:GDX) rising 1.75% and showing the relative strength in miners compared to the rest of the market. Silver Wheaton added almost 3%, bringing its total gains over just the past week to 12%. Silver Wheaton often makes larger moves in both directions than the overall gold and silver market, because its streaming model gives it leveraged exposure to changes in bullion prices. Despite its name, Silver Wheaton has expanded to get more streaming agreements with gold producers as well, and that should help it benefit from any sustained rise in gold prices as well as its traditional silver-market exposure.
For Freeport, Monday's more than 3% gains come from the company's diversified exposure beyond the precious metals complex. On one hand, Freeport has extensive copper mining operations in Indonesia, and the company has worked hard to lobby against export restrictions that have threatened to cripple its mining operations there. Given that Indonesia makes up a substantial portion of Freeport's copper and silver reserves as well as almost all of its gold production, Freeport has had to negotiate carefully in order to avoid jeopardizing its entire mining division. On the other hand, Freeport's acquisition of two oil and gas exploration and production companies make the company a player in energy as well, and Freeport's decision to sell off holdings in the lucrative Eagle Ford shale play for $3.1 billion shows its commitment to emphasizing what it sees as its highest-potential opportunities.