Gold mining stocks took a tumble today after being hit by a double-whammy of lower precious metal prices and turbocharged oil prices.
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Metal Miner Mayhem
The VanEck Gold Miners ETF (GDX) was down 2% today with major holdings Agnico-Eagle Mines (AEM) flat, Newmont Mining (NEM) down 2.3%, and Wheaton Precious Metals (WPM) down 2%.
The drop in the spot gold price, down 1.3% $5,103, certainly played a part. Investors moved away from gold as a safe haven as the dollar got stronger and because of concerns that interest rates might have to move higher as the conflict in Iran and the Gulf hikes inflation.
Gold is traditionally seen as a hedge against inflation, but low rates also make it more attractive because it is a zero-yield asset.
The U.S. dollar was in fine form as oil prices raced near $120 a barrel. That’s because cash will become much more attractive if the disruption in the Gulf impacts oil supplies and batters global economic growth.
The strengthening dollar also hit precious metal prices because bullion becomes more expensive for buyers in other currencies.
Oil and the Economy
Gold miners were also dragged lower by global economic fears.
“One might have expected all types of commodity producers to be in demand if inflation picks up. When inflation goes up, investors often seek exposure to hard assets as they tend to retain value better than financial assets in such an environment. However, miners were among the biggest losers on the market on Monday,” said Dan Coatsworth, head of markets at AJ Bell. “The spike in oil prices means mining companies face a sharp rise in costs to run their operations. There is also increased uncertainty around global economic activity because the Iran conflict puts a question mark over demand levels for metals and minerals near-term.”
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