Stocks lost ground on Thursday as investors debated whether to look for strong or weak economic data in light of their impact on the Federal Reserve’s future monetary policy decisions. At 11:15 a.m. EDT, Dow Jones Industrial Average (DJINDICES: ^ DJI) was down 221 points to 34,593. S&P 500 (SNPINDEX: ^ GSPC) had lost 29 points to 4,451, and the Nasdaq Composite (NASDAQINDEX: ^ IXIC) had lost 106 points to 15,056.
With all the huge gains that high growth tech stocks have made over the past year, many investors have stopped paying attention to commodity markets like gold and silver. However, precious metals have made significant moves in recent weeks, and the trend appears to be much more negative for investors in these commodities than this market has seen in some time. Below, we’ll take a closer look at what’s going on with precious metals today and what it could mean for the rest of the stock market.
All that glitters is not gold
The declines among precious metals have been significant. Gold prices fell $ 38 an ounce, or more than 2%, to $ 1,757. Silver saw an even larger percentage drop, dropping $ 1 an ounce, or more than 4%, to $ 22.80. Platinum prices have fallen from $ 11 per ounce to $ 929.
Palladium managed to reverse the trend on Thursday, rising $ 37 per ounce to $ 1,972. However, palladium, which, along with platinum, is used in catalytic converters in the auto industry, remains down more than $ 600 an ounce over the past month as nervousness over auto production and demand the resulting platinum group metals weighed on the commodity markets.
Gold stocks saw even bigger declines. Heart mine (NYSE: CDE) fell by 11%, while Hecla mining (NYSE: HL) and Sibanye Stillwater (NYSE: SBSW) both fell 9%. Money-focused miners also fell sharply, with Strive for money (NYSE: EXK) and Fortuna Silver Mines (NYSE: FSM) down 8%.
Gold wants a slow economy
Most gold investors have pointed out that recent economic data has caused precious metals to fall. On Thursday morning, the Commerce Department said U.S. retail sales climbed 0.7% in August, defying economists’ forecasts of a similarly large drop for the month. Core retail sales excluding autos jumped even stronger 1.8%. This brought the year over year increase in the figure to over 15%.
These figures show that consumers remain confident enough in the economy to keep spending. This would give the Federal Reserve more leeway to raise short-term interest rates to control inflation. Precious metals are often seen as a hedge against inflation, so anything that gives the Fed more leeway to fight price hikes could hurt the prospects for investing in gold and silver.
Industry figures show similar optimism. The latest trade outlook news from the Philadelphia Federal Reserve showed an increase in manufacturing activity. Although new orders have been somewhat weak, the companies polled said they still expect significant growth over the next six months.
More room to fall?
Even after today’s declines, investments in precious metals are still at levels well above what they were two or three years ago. If the upward trend in gold and silver prices has truly reversed, it means investors need to be prepared for substantial downward movements even from these current levels. This in turn could push distressed gold and silver mining stocks away to support the fastest growing sectors of the market.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.