Key Points
Silver and gold have both taken considerable price hits over the past few days.
Much of this can be traced directly to the federal government's latest employment statistics.
A continuing rout in precious metals stocks again put the hurt on Hecla Mining's (NYSE: HL) shares on Tuesday. The company, which considers itself the largest primary silver miner in North America and also produces gold, continued to be affected by recent softness in the spot prices of its favored metals, and its stock fell by nearly 3% that trading session as a result.
Not so precious?
Silver, gold, and other precious metals had been in something of a holding pattern since mid-May, but this changed last Friday with the release of the latest monthly national employment statistics released by the federal government. These revealed that the tally for new, non-farm jobs created was 172,000, more than double the Dow Jones estimate.
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With far more new jobs than anticipated in this country, the Federal Reserve is much more likely to maintain its current interest rates for longer than expected, or even raise them -- a spike in employment tends to fuel inflation, as the new workers need to get paid, and they also spend into the economy.
Consequently, higher interest rates mean higher bond coupons, which in turn drive up the yields of current debt instruments. With that, non-yielding assets such as precious metals become less attractive to investors, a dynamic that's been largely in place since Friday.
Hecla Mining and its peers are particularly vulnerable to this, as their key costs are fixed and considerable. Even a minor swing up or down in the price of gold, silver, or whatever precious metal in which they specialize will have an amplified effect on their fundamentals.
Lingering challenges
This follows a sustained bull run in precious metals that saw several, including silver, reach new all-time highs. When considering that, the current bearishness doesn't necessarily look like an existential threat. Yet considering that geopolitical tensions remain high and economic headaches aren't going away, I'd probably avoid Hecla stock specifically and precious metals miners generally these days.
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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.
