Key Highlights

  • December gold futures dropped $152.80 to $4,168.40 an ounce, the worst session since June 10.
  • Market reports also listed Barrick, Pan American Silver and Wheaton Precious Metals among the decliners.
  • The 10-year Treasury Yield reached its highest level since 2007, and the dollar index rose to 100.94.
  • Wednesday's August PCE Inflation report is the next big test, followed by Friday's September jobs report.

Gold miners were hammered on Monday, September 28, as bullion suffered its worst day since June, and Gold Fields (NYSE:GFI) took an extra hit when Northern Star Resources rejected its multibillion-dollar Takeover proposal.

Bullion's bad day hits the diggers

When gold falls hard, the companies that mine it usually fall harder. That is exactly what happened on Monday. December gold futures dropped $152.80 to $4,168.40 an ounce, the worst session since June 10. Spot gold slid to a seven-week low of $4,148.69.

Miners carry built-in Leverage to the gold price. Their costs of digging, processing and staffing stay roughly fixed in the short run, so a drop in the metal's price takes a bigger bite out of their profit margins. Investors often sell miners first when gold turns.

The big names

Newmont (NYSE:NEM), the world's largest gold miner and an S&P 500 member, slid sharply on the day as gold fell about $150 on higher yields and a stronger dollar. Agnico Eagle Mines (NYSE:AEM) tumbled even more. Market reports also listed Barrick, Pan American Silver (NASDAQ:PAAS) and Wheaton Precious Metals (NYSE:WPM) among the decliners.

Gold Fields: a double hit

Gold Fields had the worst day of the group. Its US-listed shares plunged by double digits. On top of the gold selloff, Northern Star Resources rejected Gold Fields' proposal valued at A$38.7 billion, or about US$27.1 billion, which offered 0.3125 Gold Fields shares plus A$5.09 in cash per Northern Star share.

Northern Star Chairman Michael Chaney said: "Gold Fields has sought to acquire one of the world's premier gold portfolios at a price that falls well short of what the Board considers to be its fundamental value and at a highly opportunistic time." John Ayoub of Wilson Asset Management added: "This bid feels opportunistic and (we) would agree with the board in rejecting it."

Why gold fell

The pressure came from the Bond Market and the Federal Reserve. The 10-year Treasury yield reached its highest level since 2007, and the dollar index rose to 100.94. The Fed raised rates in September for the first time in three years, and futures now price a strong majority chance of another hike at the October 28 meeting. Gold pays no interest, so rising yields make it less attractive.

Silver fared even worse than gold, falling $3.08 to $61.72, which dragged silver miners like Coeur Mining (NYSE:CDE) and Hecla Mining (NYSE:HL) lower too. Spot silver fell to $61.53, and copper also declined.

Market reports said basic materials led the broader market's declines. The S&P 500 fell 59.72 points to 7,683.69, and 2,054 NYSE stocks declined against 678 that rose.

Miners remain a leveraged bet on gold

Miners will keep trading as a leveraged bet on gold, which hinges on yields and the Fed. Wednesday's August PCE inflation report is the next big test, followed by Friday's September jobs report. September and the third quarter end on Wednesday, and gold is on course for a losing month, according to Edward Jones. For Gold Fields, investors will watch whether it responds to Northern Star's rejection.