Fool's Gold Report: Silver Falls 3% As Bull Run Pauses


Gold and other precious metals have performed surprisingly well in 2014, holding their gains even after stocks bottomed out and started regaining lost ground this month. But Wednesday, the rise in precious metals came to an abrupt end, with investors pointing to a jump in the value of the U.S. dollar and increasing signs of geopolitical stability as root causes for the pullback. April gold futures settled down almost $15 per ounce at $1,328, while March silver futures fell an even sharper $0.71 per ounce, dropping to $21.09. Those drops sent the SPDR Gold Shares and iShares Silver Trust down 0.9% and 2.9% respectively, with the Market Vectors Gold Miners ETF falling more than 1% as silver miners in particular dropped substantially.


Today's Spot Price and Change From Yesterday


$1,330, down $12


$21.22, down $0.68


$1,424, down $12


$730, down $4

Source: Kitco. As of 5:30 p.m. EST.

Is this the beginning of a bigger pullback?
Long-term investors aren't always familiar with the short-term forces that affect markets, but if you're going to invest in precious metals, it's important to pay attention to these short-term dynamics. With such a big move upward in such a short period of time, many traders were waiting for a pullback as an opportunity to take profits and look for potentially lower entry points to reestablish positions in gold and silver.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

Today's data from the U.S. housing market might well have been the excuse traders needed. After such dour housing news last week, today's jump in new-home sales of 9.6% in January was much larger than expected and contradicted the negative assessments of the state of the housing industry. Moreover, with Fed chair Janet Yellen delivering delayed testimony to Congress tomorrow, precious-metals investors likely anticipated that the new-home sales report would serve as a valuable data point in support of the Fed's planned tapering of quantitative easing.

At this point, most investors have a relatively gloomy assessment of the macroeconomic background affecting precious metals. What will be more important is whether mining companies react to fundamentals and start rebuilding their businesses based on new lower price points.

Miners: time to perform
For the most part, moves in mining stocks mirrored bullion-price changes, with silver miners taking the brunt of the damage today. With most of the industry's earnings reports already having taken place, investors will turn their focus to whether the company can deliver on their guidance for 2014. Fluctuations in gold and silver prices will have an impact on financial results, but production figures are dependent largely on operational considerations that aren't as sensitive to price changes in the short run.

Nervous investors who have positive long-term views on gold and silver need to accept minor setbacks like today's as par for the course in the precious-metals markets. Creating an investing strategy that can withstand whipsawing markets is critical to make sure you don't lose your resolve -- regardless of what particular stance you take in precious metals.

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