Why Goldgroup Mining Stock Soared on Wednesday
Key Points
All factors being equal, lower rates mean higher demand for non-interest-bearing assets.
That's why gold, silver, and other popular metals were rising.
- 10 stocks we like better than Goldgroup Mining ›
Precious metals prices jumped higher on Tuesday, and many stocks tied to these commodities rose in sympathy. One notable example was Goldgroup Mining (NYSEMKT: GORO), a Canadian company that focuses on everyone's favorite yellow metal. Its shares closed the day's trading session nearly 8% higher.
A precious rally
Gold, silver, and other high-value metals have been volatile so far this year, and on Tuesday, they moved in the right direction. As of late afternoon, the spot gold price had crept up by more than 1%, reversing a general slump that had been in effect across the preceding days.
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A major catalyst in this was the monthly private payroll data release by Automatic Data Processing. The always-influential report, which is regularly monitored by many economists and analysts, found that such payrolls rose less than expected in August -- by 38,000 jobs.
That didn't come close to the 48,000 predicted by economists polled by news agency Reuters. It also fell well short of the revised July total of 46,000.
Lower-than-expected payroll growth indicates economic softness, which in turn makes interest rate hikes less likely. In turn, this increases the appeal of investments not tied to interest rates -- like gold, silver, platinum, and their ilk.
Boat on a rising tide
So Goldgroup's Tuesday bump wasn't because of any proprietary news from the company, and it was entirely in character for a gold stock when the economic winds blow a certain way.
Personally, I think that inflation -- America's current No. 1 economic worry -- will play a more significant part in the decision to adjust rates than anything else. Gold bugs should keep watching how it develops.
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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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