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Geopolitical Fears Fail to Spur Precious Metals: Should You Look Elsewhere in 2018?

When markets opened on March 5, experts and analysts feared that the impending actions of the Trump administration could spark a global trade war. Reports have varied when it comes to the internal White House battles over the implementation of steel and aluminum tariffs, but President Trump appeared to signal a hardline path forward in statements Monday.

Paul Ryan, the Republican Speaker of the House, and other lawmakers in the party attempted to steer the administration in another direction on Monday. The Republicans cited economic concerns as well as the potential for political fallout in the 2018 midterms if the stock market were to demonstrate volatility in the wake of the action.

President Trump claimed that the tariffs would come off if a “fair” NAFTA deal is reached. In the meantime, Canadian officials and close U.S. allies like Germany have been in a race to change the mind of the administration.

U.S. and Canadian indexes appeared to be somewhat encouraged by developments on Monday. The top U.S. indexes, including the Dow Jones Industrial Average, NASDAQ, and S&P 500 all rose by at least 1% on March 5. The S&P/TSX Index also climbed 156 points, which represented a 1% jump.

The spot price of gold and silver was more sluggish on Monday. As of the evening hours on March 5, gold was trading above $1,320 per ounce, and silver was trading below the $16.50 per ounce mark. Stock market convulsions and concerns over geopolitical trade tensions have failed to spur precious metals in early 2018. Bitcoin and other cryptocurrencies have also stabilized after a precipitous fall in January, which may be bad news for gold and silver going forward.

Gold has shown poor support levels and weak trending activity into the month of March. There are, however, a few outlying gold equities that have overcome the stagnation in the yellow metal thus far. Goldcorp Inc. (TSX:G)(NYSE:GG) is a Vancouver-based gold mining company with operations in North and Central America. Shares of Goldcorp are up 3.3% in 2018 as of close on March 5.

Goldcorp released its 2017 fourth-quarter and full-year results on February 14. Gold production exceeded its guidance of 2.5 million ounces, and net earnings in Q4 rose to $242 million compared to $101 million in the prior year. The stock also offers a modest dividend of $0.03 per share with a 0.7% dividend yield.

Silvercorp Metals Inc. (TSX:SVM)(NYSE:SVM) is a mineral mining company that is also based in Vancouver. Silvercorp stock is down 1.8% in 2018, but it has climbed 11.8% over a three-month span as of March 5. The company released its third-quarter results on February 8. Inventories of silver-lead concentrate were valued at approximately $16 million, which represented a 39% jump year over year. Silvercorp also offers a dividend of $0.01 per share with a 0.8% dividend yield.

Rising interest rates and strong global growth will likely continue to limit the upside for precious metals equities in the short to medium term.

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