Why New Gold Stock Slumped This Week
Key Points
Its No. 1 product was enduring price declines.
The precious metal is now notably lower than its historic peak in late January.
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New Gold's (NYSEMKT: NGD) stock was hardly golden on the market this week. As one of the many pure-play precious metals mining companies on the scene, its equity took a hit as the prices of such goods declined over the past few days. Ultimately, its shares fell by 17% over the week, according to data compiled by S&P Global Market Intelligence.
A pure-play at heart
Precious metals had been on a tear for months, culminating in an all-time high spot price for gold of almost $5,600 per ounce in late January.
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That was due to something of a perfect storm, with growing worries about inflation, and developments in the geopolitical sphere driving investors into investments traditionally considered to be safe; for many, gold is considered to be such an asset.
Yet developments in recent weeks dampened the rally, prompting people to sell precious metals. One major factor in this is the strengthening of the U.S. dollar, a dynamic that makes primarily dollar-denominated assets more expensive for investors holding other currencies. Another is profit-taking; many gold holders clearly saw an opportunity to book handsome gains by selling at those historic prices.
Meanwhile, New Gold's status is somewhat in limbo, which doesn't help with market sentiment. Last November the company agreed to be acquired by peer Coeur Mining. So far, the deal has surmounted several hurdles, but some -- like approval under the Investment Canada Act -- are still pending.
New life for New Gold
In a world that has recently seen an uptick in uncertainty, not least because of the war with Iran, I feel gold and other precious metals have a better-than-average chance of rising in the proximate future. And while a merger in the industry is never easy or quick, I think the Coeur Mining/New Gold deal will wrap up before long. Gold bugs should consider loading up on New Gold stock while it still exists.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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