(ABX) (TGD) (AG) (SLW) | Precious Metals Stocks Continue To Feel The Pressure

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Barrick Gold Corp. (NYSE: ABX) | Timmins Gold Corp (NYSEMKT: TGD) | First Majestic Silver Corp (NYSE: AG) | Silver Wheaton Corp. USA (NYSE: SLW)

Barrick Gold, Timmins Gold, First Majestic Silver, and Silver Wheaton have all seen better days in the market. While these stocks all saw strong growth in the beginning of the year, as we move forward, we’re seeing more and more downward movement. What happened to the bull run? Are the declines here to stay? Today, I’ll do my best to answer these questions.

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What Happened To The ABX, TGD, AG, and SLW Bull Run?

When we look at Barrick Gold, Timmins Gold, First Majestic Silver, and Silver Wheaton, it becomes clear that they all have one thing in common. Each of these companies is heavily focused on precious metals. Whether it be gold or silver, these companies focus on mining, processing, and selling precious metals. Therefore, they are all at the mercy of market spot prices.

In the beginning of the year, ABX, TGD, AG, and SLW all saw gains, and for good reason. Precious metals were headed upward in value, meaning that these companies made more money. The gains in the values of precious metals came as global economic concerns continued to grow stronger. With the Chinese market crash, Brexit, Japanese economic concerns, and slowing growth in the United States, investors were clamoring for safe havens. Demand for precious metals climbed leading to gains in price. However, more recently, things have started to change.

Economic Conditions Improve As Fed Eyes Rate Hike

As mentioned above, ABX, TGD, AG, and SLW all had a strong first half in 2016, thanks to economic concerns. However, at this point, economic concerns seem to be fading. The Bank of England recently dropped a massive stimulus bomb in an attempt to improve economic conditions. Japan and China seem to be well on their way to a recovery, and investors are expecting to see further stimulus out of Europe. So, on a global scale, economic conditions are improving, leading to declines in precious metals. However, that’s not the whole story by itself.

Another factor that’s leading to declines in Barrrick Gold, Timmins Gold, First Majestic Silver, and Silver Wheaton is the United States Federal Reserve. Throughout the year, the Fed has been waiting on the right time to increase interest rates. In the first half, issues with regard to job growth, consumer spending, home sales, and more hindered these plans. However, at the moment, economic conditions in the United States are improving. As a result, we’re starting to see expectations of a rate hike.

At the end of the day, a higher interest rate out of the Fed would likely hurt the entire precious metals market. After all, gold and silver are both priced using the USD. If the Fed raises its interest rate, it will essentially raise the value of the USD. This would lead to declines in demand for gold and silver, ultimately causing the prices to fall. As a result, we’d likely watch as ABX, TGD, AG, and SLW all took a dive in the market.

Is A Higher Interest Rate Coming?

While I do believe that a higher Federal Funds rate is coming down the line at some point, I don’t expect it to happen in September. While recent economic reports have been positive overall, there is one report that I believe will lead to a delay. That report is the inflation report. In the month of July, consumer prices rose by only 0.1%. That’s a very low number, and it likely means that the Fed’s 2% annual inflation target will be missed. As a result, I don’t think we’re quite ready for a rate hike. With that said, further economic growth around the world is still likely to add pressure to ABX, TGD, AG, and SLW. So, while I don’t think a rate hike is coming, I do believe that it’s going to get worse for these stocks before it gets better.

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What Do You Think?

Where do you think ABX, TGD, AG, and SLW are headed moving forward? Join the discussion at TalkTRENDZ!

[Image Courtesy of Flickr]

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