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Precious Metals Losing Their Luster


How do you pick just one fund when everything's going up?


One of the fascinating aspects of watching where folks put their money is how they tend to become more and more aggressive the further prices rise and more and more defensive when prices correct for more than a few days.

The flow of assets among the Rydex funds is a good way to view this kind of activity, as are flows into and out of the increasingly popular ProShares ETFs. I've written about various ways to view this data many times over the years, and I wanted to point out an interesting situation now.

The Rydex Precious Metals Fund (RYPMX) follows the price of gold fairly consistently, but they're not joined at the hip. The chart below shows the NAV of the fund (in the top pane) along with the total dollar value of assets in the fund expressed as a percentage of total assets in all the Rydex sector funds.

Looking at the data this way gives us a good feel for how traders in these funds are allocating their money – which sectors are most and least popular.

We can see from the chart that traders have been jumping ship here over the past couple of months, driving the fund's assets as a percentage of the total down from more than 15% to less than 10%.

The red and green arrows on the chart highlight those times that the fund's assets first became more than 15% or less than 10% of total assets, respectively. Generally, the indicator did a pretty good job at highlighting turning points in the NAV of the fund as sentiment swung from one extreme to the other.

Currently, assets are less than 10% of the total – investors have become much more interested in Basic Materials and Utilities. This is the first time since late 2005 that the fund has garnered less than 10% of the total, and other instances have been decent signals that the pessimism has temporarily become excessive.

The fund is approaching its uptrend line of the past two years, which roughly equates to the March low as well. As long as it hangs above those areas, I suspect this kind of apathy from traders will not be well-rewarded.

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No positions in stocks mentioned.

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