Precious Metals Struggle to Gain Traction, Gold Miners Downgraded Across the Board

Published July 02, 2013

| Wall St. Cheat Sheet

Source: http://www.flickr.com/photos/digitalcurrency/

On Tuesday, gold (NYSEARCA:GLD) futures for August delivery, the most active contract, decreased $12.30 to close at $1,243.40 per ounce, while silver (NYSEARCA:SLV) futures for September fell 27 cents to finish at $19.31.

Both precious metals declined as new orders for domestic factory goods were better than expected. Total new orders for manufactured goods increased 2.1 percent for the month in May to $485 billion, according to the U.S. Census Bureau. This followed an upwardly-revised increase of 1.3 percent in April (previously 1.0), and beat expectations for an increase of 2.0 percent.

Factory orders excluding transportation gained 0.6 percent, compared to a 0.2 percent increase in the previous month. Meanwhile, bookings for commercial aircrafts surged 50.8 percent. Bookings for durable goods increased 3.7 percent.

In afternoon trading, shares of the SPDR Gold Trust (NYSEARCA:GLD) fell 0.70 percent, while the iShares Silver Trust (NYSEARCA:SLV) declined 1.1 percent. Gold miners (NYSEARCA:GDX) such as Barrick Gold (NYSE:ABX) and Yamana Gold (NYSE:ABX) both plunged about 5.0 percent. First Majestic Silver (NYSE:AG) dropped 6.0 percent.

Jefferies downgraded Barrick Gold from Buy to Hold and has a price target of $14. The firm has been negative on miners this year, but believes “there is further downside to go.” Jefferies also downgraded Newmont Mining (NYSE:NEM), Kinross Gold (NYSE:KGC), and Goldcorp (NYSE:GG).

The firm explains, “Given the dramatic decline in share prices, some may perceive gold equities as inexpensive. We strongly disagree. In our opinion, gold equities have rarely been more expensive when we incorporate current gold prices. Despite a quintupling of the commodity price from 2003 to 2011, the gold mining majors generated little to no free cash flow. On our estimates, the majors are likely to generate negative free cash flow over the next several years. That said, the gold price will need to decline even further before existing mines cut production.”

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Disclosure: Long EXK, AG, HL, PHYS

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