Market Overview

Gold Ends Week Below $1,300 as it Searches for a Bottom

It's not fun to be a gold-and-silver investor.  

Gold settled Friday at $1,244.10 an ounce, 50 cents higher on the day but down 3.4 percent for the week. It was gold's worst weekly loss in 10 weeks. For the month, gold is off six percent and down 25.8 percent for the year.

Silver was off 7.2 cents on the day and is off 9.2 percent for the month and 34.3 percent for the year.

Since peaking in the summer of 2011, gold is down some 34 percent. Silver's decline is nearing 60 percent. Gold has fallen for nine of the last 10 weeks. Silver has dropped 19 percent since the end of August.

The collapse of the metals is partly due to the gains in stocks since the 2009 market bottom. The Dow Jones Industrial Average closed above 16,000 on Thursday and finished the week at a record 16,065. The Standard & Poor's 500 Index finished at a record 1,805, its first close above 1,800.

The woes for silver and gold also reflects the lack of inflation, the Federal Reserve's low-interest-rate policy since 2008, and soft economic growth since the 2008-2009 recession ended -- not to mention relative peace in Washington, D.C. (for now, anyway).

In addition, hedge fund managers who had been big on gold and silver were forced out of their positions. John Paulson's gold fund has fallen more than 63 percent this year, and, as The Wall Street Journal reported Friday, he's told investors he's not buying more.

Gold and silver have just been terrible places to put your money for more than two years. And it's not clear when the bottom will come. Many gold and silver enthusiasts were sure the metals could only go higher when gold touched up against $1,900 in August 2011.

But precious metal prices can be volatile, often wildly so.

Gold hit $702 an ounce in early 1980 and fell to as low as $260 in 2000 before pushing higher again starting in 2002. So a pullback from $1,900 was inevitable.

Once a bubble breaks -- and gold and silver were both in bubbles in 2011 – it's hard to stop the downtrend. The charts of both metals don't suggest a bottom is near.

The woes of gold and silver have hurt gold and silver mining stocks. Newmont Mining (NYSE: NEM), the largest domestic gold miner, closed down 0.5 percent to $25.73 on Friday. The shares are down 5.6 percent in November and down 44.6 percent this year. And those declines come after a 22.6 percent decline in 2012.

The Amex Gold Bugs Index, which tracks a portfolio of gold-mining stocks, was off nearly one percent on Friday at 209, and is down 53 percent for the year.

Mining stocks can be more volatile than the metals themselves, because their valuations reflect not only the price of the metal but production costs as well.

The week ahead may see continued pressure on gold, according to a survey of gold traders by Kitco Metals. Silver would likely see the same pressures. The Fed probably won’t start tapering its $85-billion-a-month bond-purchases until the first quarter at the earliest.

"Gold’s best chance at a turnaround is damage done to the euro currency," Phillip Streible, a senior commodity broker at RJO Futures, told Kitco. 

Posted-In: News Wall Street Journal Commodities Federal Reserve Hot After-Hours Center Markets Media Best of Benzinga

 

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