Gold Mining Stocks, ETFs Plunge on Taper Concerns

Joel Anderson  |

Tuesday saw major gold-mining ETFs lose ground as the industry’s tango with the Federal Reserve continues. Concerns over the long-awaited, much-anticipated, increasingly-ephemeral-in-nature tapering of quantitative easing continues to keep downward pressure on gold prices, with the spot price off nearly 0.75 percent on Tuesday. And suffering the worst are gold miners, who are currently mining gold that will almost certainly be reaching the market after the tapering begins and gold prices take another hit.

Gold Mining ETFs Fall

The Market Vectors Gold Miners ETF ($GDX) plunged over 2 percent in early trading Friday amid concerns over the taper. The Market Vectors ETF was down close to 3.25 percent on Monday before rebounding at noon and recovering enough to limit the loss to less than 0.25 percent on the day.

Other gold-mining ETFs also saw losses Tuesday. The Market Vectors Junior Gold Miners ETF ($GDXJ) fell almost 1.75 percent, and the iShares MSCI Global Gold Miners ETF (RING) dropped over 1.5 percent.

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Toronto Stock Exchange Falls

Canada is home to some of the world’s largest gold mining companies, and their decline helped lead the Toronto Stock Exchange to a second straight day of losses. The S&P/TSX Composite Index lost a little over half a percentage point Tuesday, with major Canadian gold miners leading the charge. Goldcorp (GG) lost over 2 percent, the Barrick Gold Corporation (ABX) declined nearly 1.25 percent, Yamana Gold (AUY) dropped over 1 percent, the Franco-Nevada Corporation (FNV) fell over 3.25 percent, and the Kinross Gold Corporation ($KGC) fell over 1.25 percent.

Taper Concerns Only Getting Bigger

Helping drive concern over the tapering of quantitative easing, and the corresponding drop in the price of gold, was news that housing construction permits in the United States hit their highest level since June of 2008. This number, driven by a jump in planned construction of multi-unit buildings, joins the better-than-expected October jobs numbers as positive economic data that could convince the Fed to end its stimulus in the form of quantitative easing.

Gold is often used as a hedge against inflation, and quantitative easing theoretically weakens the strength of the dollar, leading to gold prices declining when it appears as though the stimulus program is on the verge of beginning to wind down.

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