Gold Prices Fall as U.S. Rate Hike Eyed
On Tuesday, November 17, spot gold prices declined to a five-year low, closing at $1,069.30 an ounce. The last time gold prices traded this low was in February of 2010.
The reasons for selling gold remain the same: the dollar appreciated in value compared to major global currencies and the Federal Reserve could raise its benchmark interest rates in December.
Due to the decline to even lower gold prices, the precious metal mining sector was severely hurt. Market Vectors Gold Miners ETF (NYSEArca:GDX), which tracks the performance of top gold mining stocks, fell 4.8% as gold prices declined. Year-to-date, this fund has declined by more than 30%.
A number of large producers are under pressure, too. Barrick Gold Corporation (NYSE:ABX), one of the biggest gold miners in the world, declined nearly 8.4% on Tuesday. Since the beginning of the year, Barrick Gold has come under a significant amount of fire from investors. ABX stock has lost close to 33% in value since the beginning of 2015 alone.
Big investors seem to be pessimistic towards Barrick as well. At the end of the second quarter of 2015, Soros Fund Management LLC, founded by billionaire investor George Soros, owned 1.88 million shares of the mining giant. (Source: “Form 13F,” Securities and Exchange Commission, July 31, 2015.) In the third quarter, the fund didn’t own any ABX shares.
Scrutiny isn’t just limited to Barrick, though. Other well-known miners are seeing a decline in their stock prices as well. Miners like Goldcorp Inc. (NYSE:GG), Newmont Mining Corporation (NYSE:NEM), and Yamana Gold Inc. (NYSE:AUY) are all down year-to-date.
Despite Low Gold Prices, Demand Remains Solid
While the overall sentiment towards gold prices seems very pessimistic, there are a few factors that suggest demand for the physical yellow metal remains solid.
For instance, as of November 17, the U.S. Mint has sold 759,500 ounces of gold in American Eagle coins in 2015. In the entire year of 2014, the Mint sold 524,500 ounces of gold in American Eagle coins. This suggests that the demand for the precious metal is running 44% higher in 2015 than the previous year. (Source: U.S. Mint web site, last accessed November 18, 2015.)
Central banks also remain solid buyers of gold bullion. According to the World Gold Council, in the third quarter of 2015, central banks purchased 175 tonnes of gold. The third quarter marked the 19th quarter when central banks were net purchasers of gold bullion. In the first three quarters of 2015, central banks have purchased more than 425 tonnes of the precious metal. (Source: “Gold Demand Trends Q3 2015,” World Gold Council, November 12, 2015.)