After a summertime reprieve of sorts that saw the spot price of gold rally from around US$1,200/oz up to about US$1,400/oz, the rug has once again been pulled out from under the world’s most famous precious metal.
Spot gold is currently down another US$19.75/oz on the day and sits at $1,267.85/oz according to Bloomberg. In fact, earlier this morning, trading in December gold futures contracts had to be halted after a massive sell-order forced the contracts down by $20 within a minute.
And a report out of Morgan Stanley indicates there’s no end in sight to the bear market that gold has found itself in. MS expects that gold’s losses will extend into 2014 as the Federal Reserve pulls back on its expansionary monetary policy. Morgan Stanley has joined a growing chorus of naysayers. A chorus that includes Goldman Sachs and Credit Suisse.
Bad news for the miners
Coinciding with gold’s fall slide has of course been the share prices of the companies that mine the commodity. Over the course of the past month shares in large-scale producers like Goldcorp (TSX:GG, NYSE:GG) and Yamana (TSX: YRI) are down 12.6% and 11.3% respectively. This is far worse than the performance of the Canadian market over this period which is essentially flat.
Somewhat surprisingly though, the company with the most gold in the ground, Barrick Gold (TSX:ABX, NYSE:ABX) has been left relatively unscathed by the recent decline. Barrick’s stock is only off by 3.4% over this same period. This could however be related to the market’s anticipation of an imminent shake-up in Barrick’s board room and a more investor friendly corporate culture being installed.
The Foolish Bottom Line
If this growing list of naysayers is right, gold is not an area of the market that investors need to be in at the moment. If they are wrong however, there is a whole lot of hate that is baked into the gold mining stocks. As they demonstrated during the summertime rally, there is significant room to the upside, if gold can stage a comeback. It’s an interesting risk/reward relationship to be sure.
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Fool contributor Iain Butler owns shares of Barrick Gold, Goldcorp, and Yamana. The Motley Fool does not own shares in any of the companies mentioned at this time.
