Gold Futures Plummet, Dow Soars Over 400 Points

Gold futures plummeted and U.S. equity markets soared on Thursday as risk aversion declined significantly on Wall Street.

After hitting another new all-time record high of $1,817.60 in overnight trading, COMEX gold futures – per the December contract – settled lower by $32.80, or 1.8%, at $1,751.50 per ounce. Following the COMEX close, the yellow metal extended its losses, reaching $1,734.50 in electronic trading.

A key catalyst for gold’s decline was the CME Group’s decision to increase margin requirements on the yellow metal. CME, which owns the COMEX, raised initial margin requirements to trade gold by 22% to $7,425 from $6,075 per 100-ounce contract. The exchange operator also lifted maintenance margins by 18%, to $5,500 from $4,500.

Weakness in gold, one of the few asset classes to rally in recent weeks, helped fuel risk seeking behavior on Wall Street. The Dow Jones Industrial Average (DJIA) climbed as much as 432.41 points, or 4.0%, to 11,152.35 at approximately 2:30pm ET.

The Dow has now swung at least 4% in each of the past four trading days, as volatility and uncertainty have gripped financial markets.

The broad-based rally in equities helped support gold stocks, which posted only fractional losses despite the large drop in the yellow metal. The AMEX Gold Bugs Index (HUI) fell by 0.6% at 564.20 in afternoon trading.

Silver Stocks (SIL) Buck Trend of Lower Silver

SILVER STOCKS NEWS – Silver stocks bucked the trend of a weaker silver price on Thursday, as the Global X Silver Miners ETF (SIL) rose 0.5% to $24.72 per share. Silver stocks followed the broader equity markets higher, despite weakness in precious metals. Silver futures, per the COMEX September contract, slid $0.65, or 1.7%, to $38.68 per ounce this afternoon, but did bounce considerably from their intra-day low of $37.93.

Thursday’s outperformance of silver stocks relative to gold’s sister precious metal is a welcome respite for investors. Silver stocks have substantially lagged silver bullion this year, with the SIL posting a year-to-date loss of 8.9%, compared to a 24.9% gain for the metal.

One of the largest decliners this year in the silver stocks sector has been Pan American Silver (PAAS), which is also one of the SIL’s largest components. Shares of PAAS have tumbled 30.9% year-to-date and fell 1.2% to $28.72 on Thursday after the Company reported second quarter financial and operating results.

Shares of Pan American Silver moved lower despite the broad-based advance in silver stocks and despite reporting record net earnings of $113.5 million, or $1.04 per share. Operating cash flows also set a quarterly record, at $119.4 million, or $1.11 per share. Pan American reiterated its full-year production forecast of 23-24 million ounces of silver as well.

However, weakness in PAAS indicated that the markets chose to focus on the Company’s increased cash cost guidance, which was raised to $8.25-$8.75 per ounce, net of by-product credits, due to higher royalty payments on several of its assets.
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Gold ETFs Plunge, GLD Loses 2.0%

GOLD ETFS & GLD NEWS – Gold ETFs dropped Thursday as the SPDR Gold Trust (GLD) plunged $3.51, or 2.0%, to $171.07 per share. The sell-off in gold ETFs and the GLD stemmed from a substantial reversal in gold futures following the CME Group’s decision to increase margin requirements on the COMEX. The yellow metal, of which the GLD is a proxy, tumbled from a new all-time record high of $1,817.60 per ounce to $1,765.10 as of 12:00pm ET.

Weakness in the GLD, the largest of the gold ETFs, put considerable pressure on gold equities. The AMEX Gold Bugs Index (HUI), a composite of the world’s largest gold companies, fell 1.7% to 557.25. Notable decliners included Agnico-Eagle Mines (AEM), Barrick Gold (ABX), and Eldorado Gold (EGO) – which retreated 1.0%, 1.7%, and 3.1%, respectively.

While gold ETFs and the GLD moved lower, several gold companies were in the news Thursday. Kinross Gold (KGC) reported second quarter earnings of $0.20 per share, beating analysts’ estimates of $0.17. The Canadian-based gold miner also raised its semi-annual dividend by 20%.’
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