Last year, investors witnessed several corners of the commodity market falter. One of the hardest hit sectors, however, was metals and mining; both the commodity and its producers suffered tremendous losses in 2013. The popular SPDR Gold Trust (GLD) saw outflows of more than $23 billion last year, causing its assets under management to sink by more than 40%. Other metal funds, as well as individual mining companies, had similarly dismal performances [for more gold and silver news and analysis subscribe to our free newsletter].
Not surprisingly, most analysts were still quite bearish on the industry going into 2014. Goldman Sachs analyst Jeffrey Currie was quoted as stating that gold will be a “slam dunk” sell in 2014, as the U.S. economy continues to pick up steam. But after taking a look at the numbers so far this year, perhaps gold and silver have not entirely lost their luster.
While most U.S. equities have struggled to stay out of the red so far this year, several gold and silver miners have logged in relatively impressive gains (Year-to-date data as of 2/12/2014):
- Barrick Gold Corp (ABX) – Up 6.8%
- First Majestic Silver (AG) – Up 11.1%
- Silver Wheaton Corp (SLW) – Up 14.3%
- Yamana Gold (AUY) – Up 14.3%
- Pan American Silver Corp (PAAS) – Up 15.5%
- Goldcorp Inc. (GG) – Up 18.3%
- Franco-Nevada Corp (FNV) – Up 24.2%
- AngloGold (AU) – Up 36.2%
While some analysts believe the recent rally in mining stocks is due to the fact that these securities have been trading at all time lows, others believe the combination of monetary policy and currency fluctations play a bigger role in recent price action. In January of 2014, the Federal Reserve began tapering its massive bond buying purchases. Consequently, emerging market currencies took several steep hits. Currencies in South Africa, Chile and Brazil–all countries with strong mining presences–have been experiencing downward pressure, which could make local costs–such as wages–lower if currencies continue on their downward trend.
The Bottom Line
While gold and silver mining may be appealing at their currently low prices, investors must remember that this industry is highly volatile and is sensitive to changes in operational costs, currencies, and price fluctuations in the commodity itself. As always, we urge you to do your own research and analysis on where you think the industry is headed next.
Disclosure: No positions at time of writing.