Gold Stocks (GDX) Tumble as Gold Sinks Below $1,800

Gold stocks fell Wednesday as the Market Vectors Gold Miners ETF (GDX) dropped $1.86, or 2.9%, to $63.48 per share.  The sell-off in gold stocks and the GDX was fueled by substantial weakness in gold bullion, which plunged over $80.00 to $1,794 per ounce.  Canada’s leading gold stocks composite, the S&P/TSX Global Gold Index, retreated 2.5% alongside the GDX.

Yesterday gold stocks initially advanced, with the GDX reaching a new all-time high of $66.68 per share as gold hit a new record of $1,922.20 per ounce.  However, gold stocks pared their gains as the yellow metal turned sharply lower.  Coupled with this morning’s weakness in gold stocks, the GDX has now tumbled 4.8% in just 24 hours.

One factor contributing to the move lower in gold stocks was a cautious report published yesterday by Jefferies analyst Peter Ward.  In a research note on the gold stocks sector, Ward argued that the risks of longer-term inflation have increased due to the policies of central banks across the globe.  Although higher interest rates are unlikely in the near term, he argued that they remain a significant risk for gold mining companies in the years ahead.   Ward also contended that the high cost of mining and the challenge of replacing depleted gold reserves are potential negatives for gold stocks.