Gold Stocks (GDX) Turn Lower, Gold Futures Plunge

GOLD STOCKS NEWS – Gold stocks relinquished their earlier gains Wednesday
morning, as the Market Vectors Gold Miners ETF (GDX) initially climbed to $57.91
but later fell 2.0% to $56.19 per share. Weakness in gold stocks and the GDX was
fueled by a plunge in COMEX gold futures, which tumbled from as high as
$1,792.30 to $1,736.20 per ounce. Gold stocks in Canada moved lower alongside
the GDX, as the S&P/TSX Global Gold Index fell 2.9 to 376.61. The key catalyst
for the sell-off in gold stocks and the GDX was Fed Chairman Bernankes testimony
before Congress on the state of the U.S. economy. Goldman Sachs chief U.S.
economist, Jan Hatzius, wrote in a note to clients that Bernankes prepared
statement offered no clear signal about further easing. The reduced potential
for QE3 therefore led to a rally in the U.S. dollar and substantial weakness in
precious metals. Despite today's slide in gold stocks, the GDX has rebounded
considerably thus far in 2012. Following a 16.6% decline in 2011, the GDX has
climbed 9.3% on a year-to-date basis. The gold stocks sector has modestly
outperformed the broader equity markets, as the S&P 500 Index is higher by 8.9%
this year. However, the GDX has continued to underperform the price of gold,
which is now up 11.0% in 2012. One noteworthy investor who believes that gold
stocks will soon begin to outperform the yellow metal is Bill Fleckenstein. In
his latest column for MSN Money, entitled Are mining stocks worth the wait? ,
the long-time gold bull contended that "Recent behavior in gold mining stocks
hints at an inflection point." Fleckenstein based his argument in part on the
reaction of many gold stocks to their recent earnings results. "One of the
gold mining companies I own, Agnico-Eagle Mines, announced results that were a
little worse than expected and its stock continued to grope for a bottom,
quickly shedding 7%," he wrote. "But then something different happened,"
Fleckenstein added, "and the entire group began to rally on the back of a
turnaround in Agnico-Eagle. We will just have to see if being 'different' is
an inflection point. Gold stocks have been weak recently because they are
unloved." Fleckenstein concluded by saying that "One of the reasons
continues to be that the big buyers of physical gold are in Asia, yet gold
stocks, by and large, represent companies in North America, a region where
people generally dont own gold, at least not the way Asians do. So, the
frustrating wait continues for gold-stock bulls, but at some point that patience
will be rewarded." Notable gold stocks moving lower on Wednesday included GDX
components Goldcorp (GG), Newmont Mining (NEM), and Yamana Gold (AUY). In
morning trading, GG fell by 1.7% to $49.19, NEM by 3.0% to $60.17, and AUY by
2.6% to $17.50 per share.