Fool's Gold Report: As Stocks Plunge, Why Isn't Gold Soaring?

After a strong Friday, gold investors had hoped that continued stock market pressure would lead to a bigger rebound for gold and other precious metals Monday. But even though stocks dutifully dropped, gold refused to play its part, falling back below the $1,300 mark and sending SPDR Gold Shares (GLD -0.74%) lower despite what would ordinarily have been favorable concerns about the volatile situation in Ukraine. With the notable exception of Newmont Mining (NEM 1.18%), gold-mining stocks largely followed the metal lower, and it's increasingly unclear what will propel gold further after an encouraging start to 2014.

Falling back through $1,300
June gold futures lost more than $5 per ounce Monday, settling at $1,298.30 and contributing to SPDR Gold Shares' drop of about half a percent. Silver had a more modest pullback, dropping just $0.04 per ounce to $19.91 for the May futures contract. Platinum-group metals suffered the biggest plunge, with palladium dropping nearly 3% on the day.

Source: Kitco. As of 4 p.m. EDT.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

Gold has stopped acting like the safe haven that it offered earlier in the year, as a combination of factors make it a less than ideal way to protect against the various risks hitting the investing world right now. Although gold often rises in times of geopolitical strife, the uncertainties about the impact of possible economic sanctions against Russia on the precious-metals markets are substantial enough to make investors question whether gold could rise this time. Similarly, even if interest rates stay low longer than expected, everyone's looking for a rise at some point, and that will keep long-term investors nervous about owning gold.

Still, even investors who are bearish about the prospects for bullion prices aren't convinced that mining stocks aren't a good bargain. Newmont Mining was the most important example today, with an analyst upgrading the stock from sell to neutral based largely on a less pessimistic assessment of future declines for gold. With expectations so low in the space, even warnings of a possible need for Newmont Mining to raise capital through an equity offering weren't enough to keep the analyst from raising its price target on the stock by more than 10%, to $21. Other major miners haven't seen the same gains, though, making it clear that investors have to be choosy in considering which miners are most likely to hold their own in a tough environment.

Perhaps the most surprising drop Monday was in platinum and palladium. Strikes in South Africa continue, but some have pointed to investor interest in platinum-group metals as being unsustainable in the long run. In particular, new exchange-traded funds have been hugely successful, with reports pointing to roughly 250,000 ounces of palladium coming off the market as a result. Yet even as conditions for the automotive market keep looking favorable, it's unclear whether these new platinum-group metal ETFs will keep pace with SPDR Gold Shares and other gold and silver ETFs.

Looking forward, even if gold is no longer working the way it used to, the emphasis for gold investors should be more on mining stocks than on bullion prices. It will be important for Newmont Mining and its miner peers to find paths forward regardless of what happens to gold prices. The goal for all mining stocks should be to outperform the SPDR Gold Shares and the price of gold based solely on extraordinary production and operating efforts. Mining stocks have plenty of room to rise if companies can succeed with that goal.