Gold Wrap: Temporary Turbulence
Oil prices, the gold plunge, and news about silver.
Thinking of Entering the Gold Market? First Check the Relationship Between Gold and Oil Prices
In the financial markets, gold is usually ascribed to the commodities category. In this group of assets you will find your good old friend, silver, along with several others metals like platinum, palladium, copper etc. Apart from that, commodities encompass a broad range of other products in the like of corn, but also crude oil, gas, minerals and other. Such groups of assets are usually traded on commodity exchanges specialized in this kind of products, for instance on the Chicago Mercantile Exchange or the London Metal Exchange.
Commodities differ from stocks or bonds in the fact that, usually they have significant importance for some industry. For example, silver is used in the production of electrical conductors and oil is used as fuel for various kinds of machines. The main difference from a financial point of view is that, other than bonds and stocks, commodities do not give you cash flows in the like of dividends, coupons, or the principal. The only way in which commodities generate returns (excluding industrial applications) is when their price changes in the direction you bet on. Read more...
Today's Market: Stocks Soar, Gold Plunges
Fiscal-cliff rumors were flying all over the place this morning, as S&P 500 (INDEXSP:.INX) futures traded in a 10-point range prior to the cash market open. At 9:00, Speaker Boehner took the podium and stated that it was time to consider "Plan B," a proposal to keep taxes at current levels for those making under $1 million per year. What looked like a stalemate situation between parties has actually led to a big rally in financial markets. In days past, such events would typically lead to a market sell-off. However, it appears that this environment has subsided for the time being. At present levels, the Nasdaq (INDEXNASDAQ:.IXIC) is leading the charge, up 1.4%, with the Russell 2000 (INDEXRUSSELL:RUT) up 1.2% and the S&P 500 up 1% on the day. Bonds are selling off sharply, currently down over 1% on the day.
What's particularly interesting about today's market is the sharp sell-off in gold. Currently, gold futures are trading near 1670, down about 30 points on the day. While the gold sell-off is noteworthy, it's especially interesting given the weakness seen in the US dollar. Commodities typically trade in an inverse relationship to the dollar, so on a day like today - where the dollar index is down about 0.4% - you would expect strength in the commodities space. Despite dollar weakness, the only real strength in commodities markets is in crude oil and lumber futures. This relationship should be monitored closely going forward, as it has major macroeconomic implications. Read more...
Gold or Silver Stocks? Or Both?
Recently, gold's performance and silver's performance weren't what precious metals investors had expected, even though it seems that this turbulence is just temporary – fundamentals are great with the Fed promising to print even more money and continuous reports on rising demand for gold and its shrinking supply. Moreover, the trend is still up from a technical point of view. Yet waiting for the precious metals rally to finally kick off can be frustrating.
But the fact that the big rally hasn't started yet provides a great opportunity to take a look at the whole market from a distance and analyze it in search of some decent investments. Most investors focus solely on gold and silver, completely overlooking other profitable precious metals such as platinum and palladium and – what seems to be even more important – precious metals stocks. The latter are excellent for diversification purposes and can outperform the underlying metals (this hasn't been the case in the past months, though). And this is why in today's technical part we focus on both gold and silver stocks. We'll start with the former. Read more...
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