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Precious Metals Stock Roundup: Gold Shoots Up as US Wards Off Default

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After retracing to a three-month low, gold bounced back to start the last week modestly higher as U.S. debt default woes sparked some safe-haven buying. The shiny metal gained in mid-week trading following the last-ditch Senate deal that rescued the nation from a default and closed the week on a high note on hopes that lingering uncertainties in Washington will make the Fed continue its bond-buying stimulus.

The Week That Was

Gold enjoyed a modest bump on Monday as lawmakers on Capitol Hill failed to agree on increasing the country’s $16.7 trillion borrowing limit to stave off a default. The metal also gained on a weak U.S. dollar which continued to struggle amid the fiscal fiasco. The partial U.S. shutdown, which put 800,000 federal workers on furlough and cost the government billions, entered its third week as politicians in Washington failed to hash out a deal to reopen the government.

Bullion traded lower the following day as traders mulled that an agreement to raise the debt ceiling would be reached soon, taking some shine off gold’s appeal. Senate Majority Leader Harry Reid said that he is optimistic about a deal that would end the shutdown and prevent default.    

Gold prices ticked higher on Wednesday after the U.S. Senate cut a deal to end the twin predicaments. Harry Reid and Senate Minority leader Mitch McConnell announced a bill that would fund the government until Jan 15, 2014, and extend borrowing through Feb 7.

Gold’s positive reaction to the news looked surprising as the metal, under normal circumstances, gains from negative vibes in the economy and is considered a safe-haven amid economic and geopolitical tensions. However, the metal’s gains were mostly fueled by short-covering as traders who shorted gold anticipating a debt deal closed their positions. The gain came despite the release of the Fed’s Beige Book data on the same day that revealed that the U.S. economy expanded at a moderate pace from September into October.

The debt deal, which came as a much needed reprieve hours ahead of the Oct 17 deadline to raise the borrowing limit, followed an intense political squabble that threatened to place the nation at a risk of debt default and possible credit rating cut, which would have damaging consequences on the U.S. and global economies. However, a long-term budget deal must be worked out before Dec 13.  

Bullion continued its upward momentum a day after to cross the critical $1,300 level, gaining more than 3% for the day. The gain was also backed by the prospect that damaging impacts of the shutdown on the U.S. economy and continued uncertainty would influence the Fed to hold back from tapering its monetary stimulus. The greenback, which slipped to a new eight-and-a-half-month low amid fading expectations of Fed tapering, also supported gold prices.   

Gold made a modest retreat on Friday on corrective retracement. While there was no major economic data from the home front on that day, the metal could not leverage the upbeat Chinese GDP data which showed that the country’s economy grew at its fastest clip this year in the third quarter.

Gold prices (for December delivery) on the New York Mercantile Exchange’s Comex division shot up 3.7% for the last week to close at $1,314.60 per troy ounce last Friday, marking the metal’s best weekly gain in two months. Silver also clocked a roughly 3% gain for the week to settle at $21.91 per ounce.

Both metals remained in the bear market with prices trending roughly 25% and 36% below their 52-week highs, respectively. Gold has lost about 22% of its value this year mostly on tapering fears. Shares of major gold miners including Barrick Gold (ABX - Free Report) , Newmont (NEM - Free Report) , AngloGold Ashanti (AU - Free Report) and Goldcorp (GG - Free Report) leveraged gold’s upward momentum and closed the last week higher.

Major precious metals indexes ended higher last week with the AMEX Gold Bugs Index, Philadelphia Gold and Silver Index and NYSE Arca Gold Miners Index gaining 6.6%, 6.2% and 5.6%, respectively. The benchmark S&P 500, which closed at a new all-time high of 1,744.50 on Friday, was up 2.4% for the week.

Stocks in the News

Among notable developments last week, mining giant Freeport-McMoRan (FCX - Free Report) reportedly landed a tentative deal over wages with workers’ union of the Grasberg mine in Papua, Indonesia. The company said that both parties have agreed on the terms (including a base pay hike) to be included in the Collective Labor Agreement (CLA) for the 2013-2015 period and the negotiating team is in talks to settle the remaining details before the end of this month. The new deal will be retroactive to Oct 1.

In another development, Canadian gold miner Nevsun Resources (NSU - Free Report) shipped its first ocean pre-commercial copper concentrate from the new Bisha copper plant in Eritrea, East Africa. The shipment was completed with the help of Nevsun’s partner Eritrean National Mining Corporation and the port authorities in Eritrea. Commissioning and ramp up of the Bisha copper expansion continues with commercial production expected in late 2013/first-quarter 2014.

Kinross (KGC - Free Report) , which gained around 4.5% last week, reportedly deferred a decision on the expansion of its Tasiast mine in Mauritania to 2015 regardless of the outcome of the feasibility study due early next year. The expansion will not take place next year even if gold prices move up as the company plans to conserve cash.

Gainers and Laggards


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What Lies Ahead?

Traders are buckled up for a deluge of earnings and economic reports this week. Gold bugs will closely watch a spate of U.S. economic data including those that were held back by the government closure, which may influence the Fed’s tapering decision. With the threat of a disastrous debt default now behind us, the focus has shifted to the next Fed policy meeting scheduled later this month.

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