March 16, 2012

Metals & Markets Showing Further Divergence

In recent weeks, the prices of key metals have fallen sharply from recent highs, while major stock indexes have moved up nicely

The strong showing of the major U.S. stock indexes this week and over the past three months has seen a corresponding drop in the prices of major metals. And, in the short term, at least, experts say that major metals are not poised for a reversal.

Prices of the SPDR Gold Trust ETF (GLD), for instance, and the iShares Silver Trust (SLV) are down 2-4% this week, while the Dow Jones and S&P 500 indexes have risen at a 2-4% clip.

Over the past three months, these key metal-focused ETFs have been in positive territory, but have fallen sharply from their late February highs. Meanwhile, the major stock indexes have moved up over 10%, and the Nasdaq has improved roughly 20%.

Are metals expected to catch up? Based on trends in China tracked by Standard Chartered Bank, demand is looking soft, analysts said earlier this week. Plus, large money managers have cut their gold positions.

Gold prices have lost more than half of this year’s gains due to speculation that improving U.S. economic data will discourage the Federal Reserve from buying more debt.

Earlier this week, gold futures for April delivery fell 3% to $1,642.90 an ounce on the Comex in New York, which was the biggest drop for such a contract since Feb. 29. At one point this week, the price touched to $1,639.20, the lowest level since Jan. 17.

Silver futures for May delivery declined more than 4% to $32.181 an ounce earlier this week, which was the biggest decline since Feb. 29. The metal also touched $31.65, the lowest since Jan. 25.

Over the past six months, while the SPDR S&P 500 (SPY) has moved up about 15%, GLD had moved down 10% and SLV 20%.

In a one- and two-year context, though, gold and silver have outperformed the markets: GLD has improved 50% over the past two years, while SLV has jumped 100%.

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