Why Eldorado Gold Stock Was Diving This Week
Key Points
Interest rate hikes in the U.S. are becoming a real possibility, according to some professional Fed-watchers.
That, plus the continued push for a settlement in the Iran war, was driving investors out of non-yielding financial assets.
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With the price of its favorite precious metal declining, Eldorado Gold (NYSE: EGO) stock has taken it on the chin over the past few trading days. According to data compiled by S&P Global Market Intelligence, the mining company's shares were down almost 13% week to date as of early Friday morning.
Tarnished metal
Gold is currently on a losing streak due to several factors. Chief among these is the growing expectation from analysts and economists that the Federal Reserve (Fed) will raise interest rates in the coming months. After all, inflation is still a problem -- not least because of the economic fallout of the war with Iran -- and the primary remedy for a central bank is higher rates.
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As rates rise, the attractiveness of non-yielding assets such as gold declines, which in turn helps fuel the sell-offs we've seen over the past few days. Compounding that, as the temperature seems to be cooling in the U.S.-Iran negotiations to end the conflict, many investors consider precious metals less appealing as safe-haven plays.
Another factor was that the gold price dipped below $4,000 per ounce on Wednesday, to its lowest level since late last year. Market players can get spooked when an asset dips below a certain price; although the actual decline might not be dramatic, it often serves as a reminder that the investment is stumbling.
Late-week bounce
As of this writing, gold had bounced above the $4,000 line near the end of the week, and Eldorado bounced along with it.
I'm not convinced that this bear run in the precious metal is over, however, as I feel we haven't seen the last of discouraging developments on inflation, and the war seems to be lurching toward a conclusion. I'd remain wary of precious metals like gold and the mining companies that specialize in it, like Eldorado.
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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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