Precious Metals Stock Roundup: Gold Retreats as War Drums Wither - Analyst Blog

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After barely moving on Monday, gold marched lower through the rest of the last week as drums of war against Syria slowly faded. Gold suffered sell-offs for four consecutive days as investors followed fretting the prospects of war with an understanding it looks much less in the cards. The yellow metal took a heavy beating and ended the week in red.

The Week That Was

Gold prices closed flat on Monday as investors continued to speculate on a U.S. military strike against Syria and prospects of Fed's $85 billion a month bond buying program.

However, prices fell the next day as gold's safe-haven demand waned on expectations that military intervention in Syria could be avoided. Likelihood of a targeted U.S. attack ebbed on news that Syria has welcomed Russia's proposal to put its chemical weapons under international control.

Last week, the U.S. and Russia set aside their differences and cut an agreement on a framework to seize and destroy Styria's chemical weapons stockpile by the middle of next year. President Obama asked Congress to delay the Senate vote on a planned airstrike and said that such a move could be shelved if Syria eventually gives up its chemical weapons. However, the President is keeping the door open for using force, should diplomacy fail.  

Gold's southern march continued on Wednesday as efforts to avert war through diplomatic means remained in place, elevating downside risk for the metal's prices. Traders who took long positions in gold on hopes that the U.S. would attack Syria continued to offload their positions.

Gold suffered its biggest loss for the week a day after upon increased selling pressure amid prospects that the Fed will divulge a tapering decision in a two-day Federal Open Market Committee (FOMC) meeting that began yesterday. The expectations were triggered by initial weekly jobless claims data. The Labor Department revealed that the number of people filing for initial unemployment benefits fell 31,000 to 292,000 (lowest since 2006), below analysts' expectations of 330,000.

Gold's losing streak continued on Friday on speculations on the outcome of the FOMC meeting (with increased odds of Fed tapering) and the rumor that former Treasury Secretary Larry Summers would be named the next Fed chief as the White House hunts for a successor to Ben Bernanke, whose term ends this January. The sell-off was driven by concerns that Summers would be more hawkish on monetary policy than other potential candidates including the incumbent Fed Vice Chairman Janet Yellen.

Gold prices (for December delivery) on the New York Mercantile Exchange's Comex division closed at $1308.60 per troy ounce last Friday, a 5.6% slide for the last week. Silver suffered a similar fate and lost 9.1% for the week to close at $21.67 per ounce. Both metals hit a four-week low during the week.

Gold and silver continue their bear market runs with prices trending roughly 27% and 38% below their 52-week highs, respectively. Gold prices (based on last Friday's close) are down roughly 9% from their three-and-a-half month high of $1,433.31 an ounce logged in August.

The AMEX Gold Bugs Index ( ^HUI ) slipped down 8.6% last week while the Philadelphia Gold and Silver Index ( ^XAU ), which includes both gold and silver stocks, sagged 7.1%. This compares to a roughly 2% gain for the S&P 500 ( ^GSPC ).

Shares of most major miners, including Barrick Gold ( ABX ), Goldcorp ( GG ), Newmont ( NEM ), AngloGold Ashanti ( AU ), Agnico-Eagle ( AEM ) and Kinross Gold ( KGC ), traced the daily fluctuations of metals prices through the week and got hammered by tapering fears.

Gold's fortunes hinge on developments surrounding Syria and Fed tapering. Any possible military action on Syria augurs well for the safe-haven demand of the metal. On the flip side, if the war is eventually averted, gold prices would be under pressure. Moreover, the Fed's decision on scaling back its stimulus will heavily influence gold's near-term prospects.

Stocks in the News

On the corporate news front, striking workers at Gold Fields ( GFI ) returned to work at the South Deep mine after receiving a two-year salary raise offer from the Chamber of Mines. Under the deal, pay hike will be implemented retroactively from July 1, 2013. In the second year, employees will get further inflation-linked raises.

South Africa's mining industry has been hobbled by a series of labor strikes with other miners including AngloGold Ashanti and Harmony Gold ( HMY ) facing aggressive wage negotiations with unions.   

In another development, Newmont is reportedly launching commercial operations in the Eastern Region of its Akyem mine in Ghana in October. The mine, which has estimated gold reserves of 7.7 million an ounce, is expected to produce up to 450,000 a year in the first five years of its operating life. With Akyem coming on stream, Newmont will have two projects (the other is Ahafo) operating in Ghana.  

Barrick Gold, at the Toronto mining conference, emphasized the needs to rein in spending to maintain profitability amid an uncertain gold market and setbacks associated with the delay in its Pascua-Lama project in Chile. The gold giant, which has already slashed roughly $2 billion in capital spending during first-half 2013, has no plans to invest in new mines.   

Gainers and Laggards

Stocks

Past Week

Trailing 6-Months

ABX

-7.13%

-36.51%

GG

-9.91%

-19.10%

FCX

+5.97%

   0.00%

NEM

-7.33%

-28.75%

KGC

-6.50%

-34.09%

AEM

-9.54%

-31.47%

AU

-10.27%

-46.50%

SLW

-4.78%

-19.05%


What Lies Ahead?

Gold bugs anxiously await the results from today's critical FOMC meeting to get clarity on the timing of winding down of the economic stimulus. The market reckons a $10 billion-$15 billion reduction in monthly bond purchases, which if eventually happens, will dent gold prices which have benefited in recent years from Fed's ultra-easy monetary policy that tends to raise the risk of inflation.



BARRICK GOLD CP (ABX): Free Stock Analysis Report

AGNICO EAGLE (AEM): Free Stock Analysis Report

ANGLOGOLD LTD (AU): Free Stock Analysis Report

GOLD FIELDS-ADR (GFI): Free Stock Analysis Report

GOLDCORP INC (GG): Free Stock Analysis Report

HARMONY GOLD (HMY): Free Stock Analysis Report

KINROSS GOLD (KGC): Free Stock Analysis Report

NEWMONT MINING (NEM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ABX , AEM , AU , GFI , GG

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