The metals and mining sector behaved unusually for the day as the price of gold plummeted and major miners perked up. Prices for Gold declined nearly $80 an ounce during the session, slipping beneath the $1,800 an ounce in early day trading for the first time since August 29.
Equities were sharply higher for the day as the risk attitude seemed to return to Wall Street and Asian markets alike. The dollar crept higher, a bright spot amid the continued sagging of currency. The improvement led gold lower, as did the seeming attitude shift which prompted panicked investors to read early morning behavior as a mass exodus from gold. Speculation surrounding President Barack Obama’s proposal to create additional jobs infused the market with optimism.
Prior to the conjecture regarding jobs, gold had been on a bull run, peaking at $1923.10 an ounce on Tuesday. Gold investors had been encouraged by the Swiss National Bank’s decision to cap the value of the Swiss franc against the euro. The move, an effort to promote trade and tourism, would benefit gold by limiting the number of traditional safe havens available to investors. This was seen by many analysts as a long-term positive for gold.
That said, long-term investors are likely not the drivers behind gold losses today. Short-term buyers see the present an attractive exit opportunity. This morning’s sell-off allowed temporary traders to sell off at a time where the price is still inflated by a two-month bull run. Longer-term investors will probably continue to stick it out as a prolonged strategy for safety in a volatile market. Short-term investors are probably less likely to latch onto mining stocks as they do not have the massive swings that allow for major profits on gold.
That could be explained as the driving factor behind the rise of major mining operations like Goldcorp. (GG) and Barrick Gold (ABX) today. Miners are closing in on their 52-week highs, but investors continue to view them as a more affordable entry point into precious metals.
Today’s performance which saw both Gold and Silver ETFs, including SPDR Gold Trust (GLD) and iShares Silver Trust (SLV), may not last. While the President’s $300B job stimulus would help the economy in the event it passes and is effective, thereby reducing the attractiveness of gold, the likelihood of that remains indefinite. The recent budget cuts and lack of success with the first round of job recovery seemed to have influenced the current attitude about government spending in correlation to jobs.
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