Gold and Silver Whacked After Stress Test Results

March 14, 2012

On Wednesday, gold (NYSEARCA:GLD) futures for April delivery decreased $51.30 to settle at $1,645.50 per ounce, while silver (NYSEARCA:SLV) futures dropped $1.40 to close at $32.18. It was the lowest close for gold in about eight weeks.

Both precious metals came under selling pressure as financial banks appear to be stable, according to the Federal Reserve. Fifteen out of 19 of the largest U.S. banks passed the Fed’s stress test, which measures their ability to maintain adequate capital levels in a recession scenario in which they continue paying dividends while buying back stock. In 2009, about half of the banks failed the test. The test results, which were announced late Tuesday, show that banks have raised profits, rebuilt capital, and increased liquidity to better protect themselves in the event of another economic downturn.

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None of the 19 banks were forced to immediately raise capital in a sharp contrast to the first round of stress tests in 2009, in which lenders were required to raise $75 billion. Citigroup issued a statement saying that it hit capital targets, assuming it didn’t increase its dividend or share buybacks. The Fed only objected to the firm’s Capital Plan, and Citigroup will be allowed to submit another later this year.

In afternoon trading, the U.S. dollar (NYSE:UUP) climbed higher as the SPDR Gold Trust (NYSEARCA:GLD) and iShares Silver Trust (NYSEARCA:SLV) fell 2 percent and 4 percent, respectively. Gold miners (NYSEARCA:GDX) such as Barrick Gold (NYSE:ABX) and Yamana Gold (NYSE:AUY) both dropped 5 percent. Meanwhile, silver investments such as First Majestic (NYSE:AG) and Silver Wheaton Corp. (NYSE:SLW) fell 7 percent and 5 percent, respectively.