Why SSR Mining Stock Dropped Today
Key Points
Oil is getting more expensive -- and gold just got less expensive.
SSR Mining mines gold, and suffers when gold prices go lower.
SSR Mining is also a stock, and suffers when interest rates go higher.
- 10 stocks we like better than SSR Mining ›
SSR Mining (NASDAQ: SSRM) stock tumbled 4.4% through 12:10 p.m. ET Monday after BMO Capital analyst Kevin O'Halloran reiterated his "outperform" rating on the gold and silver mining stock -- but removed his $41 price target just four months after announcing it.
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What's happening with gold right now
Gold prices have been mostly treading water the past couple weeks, trading between about $4,300 and $4,400 per ounce. They fell steeply this morning, however, down 3.9% to about $4,154.
Why? It's a bit complicated, but with oil prices rising (Brent crude is up 18% over the past month), there's an expectation that inflation will rise. Ordinarily, you'd expect that to translate into higher gold prices and good news for SSR Mining. However, the worry is that inflation gets too hot, the Federal Reserve will hike interest rates to cool it down.
Higher interest rates mean investors can make more money investing in bonds (which pay interest) than in gold (which doesn't). That's probably the reason gold is selling off today.
What's next for SSR Mining stock
SSR Mining, a company that mines gold rather than the actual gold it mines, gets hit with a double whammy. On the one hand, its primary product is becoming less attractive than bonds. On the other hand, its stock suffers from the fact that high interest rates are generally bad news for stocks.
As a result, SSR stock is falling faster than gold prices today.
Is that fair? Not necessarily. The big knock on stocks in a high-interest rate environment is that it makes borrowing more expensive. But SSR Mining doesn't need to borrow -- because it's free cash flow positive and has $1.8 billion in the bank!
I expect this stock to bounce back once investors realize that.
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Rich Smith has positions in SSR Mining. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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