Gold Mining Stocks Slide as the Price of Gold Continues to Fall (ABX, GG, NEM)

As the economy slowly recovers and central banks around the world add liquidity into the markets, it seems as though the previous safe haven gold is falling out of favor among investors. Gold prices have been declining for about six months now, with few signs of a possible bounce back. If the price of gold continues to fall it could mean an enduring slide for the stock prices of gold mining plays like Barrick Gold (ABX), Goldcorp Inc. (GG) and Newmont Mining (NEM).

Gold’s Free Fall

Gold is a popular asset that investors flock to when the economy looks bleak and the appetite for risk wanes. Following the burst of the tech bubble in early 2000′s and the financial crisis at the end of the decade, gold became popular among investors weary of the stock market. 2012 marked the 12th straight year of rising gold prices. However, signs are showing that the yellow metal’s run may be over. [See CommodityHQ's Definitive Guide to Investing in Gold]

The price of gold closed on Friday at $1,576.90 per ounce, near its 52 week low of $1,543, and about three weeks ago gold went through its “death cross.” As the economy modestly recovers and central banks around the world, like the Federal Reserve, add liquidity into the markets through expansionary monetary policy, investors’ willingness to expose themselves to risk gets larger. As this thirst for risk increases, investors sell off positions safe havens like gold causing the prices to fall.

Gold ETFs

The fallout from declining gold prices can be seen across a variety of areas in the investing world. ETFs have sold 140 metric tons of gold since the beginning of the year and, according to the Financial Times, February saw the highest outflow of gold on record. This is causing the prices of gold ETFs like SPDR Gold Trust (GLD) and ETFS Physical Swiss Gold Shares (SGOL) to free fall; it seems as though investors a betting on a continued global economic recovery. [For a list of physical gold ETFs, check out ETF Database's Gold Bullion ETF List]

Gold Miners

A decline in gold prices will ultimately affect the demand of the precious metal, as the report from the Financial Times shows. As the demand for gold decreases, the gold mining industry is obviously negatively impacted as well. These gold mining companies like Barrick Gold, Goldcorp Inc., and Newmont Mining are unable to get good prices for their production, putting even more pressure on the already weak profits of these companies.

The impact can already be seen in the companies’ stock prices. Over the past six months, Barrick Gold shares are down 27.62%, Goldcorp is down 23.62%, and Newmont Mining is down 25.23%; all are hovering just above 52 weeks lows. As the economy recovers and investors flock to riskier investments, it could mean even tougher times ahead for these companies.

The Bottom Line

Though gold is on the decline and many signs are showing that this will be a continued trend, it does not mean that its losing streak will last forever. Especially in a global economy that is as fragile as ours, a little shock in the markets could lead investors to flock toward the safe haven gold once again. However, if the recovery continues and loose monetary policy leads to an appetite for risk, gold’s time at top could well be over. But investors should not sell off gold and gold related plays altogether; a position in gold is the ultimate hedge against a faltering economy.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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