Gold slid nearly $36 an ounce on Monday, closing at the lowest level in three weeks. The Gold sell-off was the result of a rise in the U.S. dollar. The dollar has been rising in spite of domestic weakness as Greece seems increasingly sure to default.
The longest winning streak in two months came to a fast halt during Monday trading after international creditors elected to suspend the next payout of financial aid until Athens is able to present a plausible solution to the fiscal deficit reduction. The absence of such a plan and the pressure to deliver had many investors closing out positions and running for the doors. As the potential impact of such an action on the global economy is unlikely to be positive, some investors elected to exit with what they may have managed to accrue in the recent period of gains.
Gold and related equities tend to attract investors head during unsure times, as occurred in early morning trading, but with the recent money flowing into gold of late and leading it to highs, punctuated by considerable sell-offs, some are opting to sell either to acquire liquidity or benefit from a short-term surge. While some believe this drop is setting gold up for another potential rally others believe that the U.S. dollar will continue to rise with the Euro’s weakness and damaged commodities.
This notion, while taking a toll on related equities, is not hitting them as hard as gold itself. Many investors who have put their money in miners, gold, platinum or silver miners have not yet seen the kind of returns they imagined. Miners, while ticking higher and offering the appeal of a more affordable alternative entry point into gold and silver have continued to underperform compared to ETFs and Futures. Compared to ETFs monitoring Gold, SPDR Gold Trust (GLD) and Silver, iShares Silver Trust (SLV) miners look underwhelming.
Without the major short-term improvements, investors are less likely to budge on the basis of short-term news. There are several upcoming events that will influence the price of safety metals and will likely have a greater impact on mining stocks. Among these events is a conference call between the Greek government and its lenders that is expected to extend from Monday into Tuesday. The outcome of this, alongside the decisions of the Federal Reserve during an upcoming two day meeting of the Federal Open Market Committee will help determine the director of precious metals and miners.
While the Federal Reserve seems largely against further stimulus, the possibility remains that added measures will weaken the U.S. currency and drive gold, other metals and perhaps miners to new highs.
The unsure nature among precious metals and related equities was reflected today in the miner movement of shares. Barrick Gold Corporation (ABX) fell less than a third of a percent as did many others components including Yamana Gold Inc. (AUY) and even Goldcorp Inc. (GG), which slumped more dramatically but remained in tact. There were also some miners that were up for the day on high volume including Newmont Mining Co. (NEM) and Silver Wheaton Corp. (SLW).
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