Shutdown gives no boost to gold prices

The closure did not send fear soaring, and mining stocks suffered as a result.

By Jim J. Jubak Oct 1, 2013 8:00PM
Image: Gold (© Comstock Images/Jupiterimages)Traders and investors who were hoping that a government shutdown -- and a possible U.S. default if Congress doesn’t raise the debt ceiling -- would send fear soaring and gold prices climbing have got to be disappointed at Tuesday's action.
 
Gold prices were down Tuesday, with the December contract falling to $1,287 an ounce for a drop of 3.04%. That’s the biggest drop since July 5. And it doesn't look like the market for gold is headed for a quick turn -- short of a zombie attack on world population centers. 

Holdings of gold bullion are down, with gold held by bullion ETFs falling 27% in 2013 to the lowest level since May 2010. 

Tuesday, Fitch Ratings threw in the towel on $1,200 an ounce as a floor for the market. "We do not see $1,200 an ounce as a price floor," Fitch wrote, "because recent price trends have been influenced far more by the use of gold as a financial instrument and a hedge against inflation than by industrial demand. Given the change in sentiment as central banks signal unwinding of economic stimulus, we recognize it is possible that the gold price could find a new floor below this level for an extended period."

A decline in the price of gold to $1,000 an ounce, Fitch continued, would put the credit ratings of some gold miners under significant pressure.

And, as if to underline the Fitch report, Newmont Mining (NEM), the largest U.S. gold miner, has joined the race to buy Glencore Xstrata’s Las Bambas mine in Peru, according to The Financial Times. 

The most important element in that story is that Las Bambas is a copper mine and not a gold mine. Up until this point in the current cycle, gold mining companies have not been active in adding copper assets to their existing gold holdings because such copper acquisitions would lower the multiple that financial markets assigned to their stocks.

Apparently gold miners are at least willing to rethink that logic now.

Tuesday, shares of Newmont Mining closed down 3.17%, Goldcorp (GG) closed with a 2.96% drop, Yamana Gold (AUY) lost 3.08%, Barrick Gold (ABX) lost 3.17% and Randgold (GOLD) had declined 1.47%. Goldcorp and Yamana Gold are members of my Jubak's Picks portfolio

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. When in 2010 he started the mutual fund he manages, Jubak Global Equity Fund (JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund may or may not own positions in any stock mentioned. The fund did own shares of Yamana Gold as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here


6Comments
Oct 2, 2013 7:07AM
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I don't see the shutdown resolving before the weekend. Our elected psychopaths aren't interested in us, they are all-in to their party positions. It's like a bunch of dogs that can't stop licking their private parts for pleasure and have to be put down because we can't stop them any other way. The nation is lost. Best to start reporting on the trends that potentially will screw the average person. A reminder that billionaires have nothing else to live for and thus... nothing to lose by boarding the lifeboats FIRST and assuring everyone else goes down with the ship. Only stupid greedy people will insist that staying put or buying on the dips as the cliff gives way-- is a strategy.
Oct 1, 2013 9:23PM
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Well, a drop in the price of gold, by $200 isn't really all that bad. Though, a great portion of the wealthy would argue. I still feel that gold mining costs are created by bank creditors with the lack in willingness to drop high interest rates.(For any loan in that manner.) Even though many mining companies are taking a large hit in the profit margins, as well as other highly valued gems & ores. It still takes machinery to mine large amounts of gold, diamonds, gems, and other ores removed from the ground. So, the financial hit are affecting a little bit of every industry. Just because, gold is the most valued ore on the planet, due to it's ability to smelt with low intensity heat, thus making it the easiest metal to mold and hand form with a lesser stress. Where as this is all common since and other factors make gold and oil the most killed for ores in human history. Though, wars over food territory have always been the most brutal. Where as nobody really knows the real truth over what caused the shut down. So what would be the reason not to lower pay for certain jobs, and not to increase pay for physical jobs. Though, it would be considered slavery. Where, as obama care has a lot to do with the shut down as well, (speculation only) due to it's higher monthly premium, although it's a sliding scale. The cost in medical science is the cost in the obama care plan.  
Oct 2, 2013 7:00AM
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Jim... maybe NOW you will wake up and recognize terrorism when you're supposed to see it. There has been no meaningful re-establishment of the mass terminated careers lost 5+ years ago and those areas of business remain pathetic. Think-- true mortgage lending and servicing, and then consider it from the current circumstances. ANY former lender could do better than 100% of the morons in it now. That's just ONE example. IF the 90 MILLION under and unemployed citizens of America were back in their family-sustaining positions, the collective revenues would be keeping our government in business and nearly every area in crises would be in reform and restitution. Yesterday's response to the wall of worry in prior days was-- 6 billion shares posted early-on and maintained all day to close. Is THAT the way Americans deal with a rupture in functional integrity? REMEMBER... stock trading is supposed to represent business activity pursuits... so of course, 800,000 furloughed Federal workers compromising commerce wherever they live and used to be customers... is a "boon" for stocks? Come on, sir. It's time to send the troops into NYC and take down and out the rubes in the financial sector who are funding Anti-Americanism. Time to restore American Freedom, Free Enterprise, Life, Liberty and the Pursuit of Happiness. We start by taking down political bastions, parties, lobbies and all other means of interference and re-establish that We the People own this land and all that it is about. $630 TRILLION in derivatives. If you believe they were created FOR us, then get paying... I'm convinced they build our demise for terrorists wearing Armani and driving Maserati. They need to be wearing striped jumpsuits and preparing for death penalty sentences to be carried out.
Oct 2, 2013 8:05AM
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It really doesn't matter how I personally value Gold. What does matter, regardless of any state of the Economy, enough folks do. It doesn't matter how many Wars are Fought. At the End of the Day, humans have always highly valued Gold. I don't see that changing anytime soon. Nor is Gold just another pretty metal. Gold does have valued uses in Industry.

The next Age of Humans, if we survive that long will be the Space Age. He or She who conquers that first will rule the World. Gold will also play a large part in that as it is an effective shielding for electromagnetic radiation.

If you ever have seen the state of Germany right after the War, you know just how bad things were there. Yet look at where they are now. They are literally King of the Euro-Zone. That gives hope when we eventually experience a Massive Collapse here. Humans can rebuild and rebuild a much improved Nation than before. Only time will tell. However a Epic failure will occur, it's not a matter of if, but when.

Oct 2, 2013 9:23AM
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gOLD WAS UP ABOUT A dOZEN dOLLARS THIS a.m. OR OVERNIGHT....

 

dOLLAr  DOWN AND OIL DROPPED A HAIR.

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