Gold prices sank Monday on fears that rising oil will push the Federal Reserve toward higher rates, and SSR Mining stock fell even harder. BMO Capital kept its "outperform" rating on the miner but dropped the $41 price target it had set four months earlier.
SSR Mining 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 miner but removed the $41 price target he had announced four months earlier. The miner suffers whenever gold prices fall, and gold fell hard Monday morning.
Gold slides as oil climbs
Gold prices had mostly traded sideways the past couple weeks, moving between about $4,300 and $4,400 per ounce. But they fell 3.9% Monday morning to about $4,154.
The move follows a sharp rise in oil, with Brent crude up 18% over the past month, stoking expectations that inflation will climb. Ordinarily that would be good news for gold. However, the worry is that if inflation gets too hot, the Federal Reserve will hike interest rates to cool it down.
Higher interest rates mean investors can earn more from bonds, which pay interest, than from gold, which doesn't. That is likely why gold sold off Monday.
A double hit for SSR Mining
SSR Mining takes a double hit in this environment. Its main product becomes less attractive next to bonds, and its stock suffers because high interest rates are generally bad news for equities. As a result, SSR stock fell faster than gold prices Monday.
Yet the sell-off may not be entirely warranted. The usual case against stocks in a high-rate environment is that borrowing gets more expensive, but SSR Mining has no need to borrow: the company is free cash flow positive and holds $1.8 billion in the bank.
Source: The Motley Fool (Rich Smith)
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