Precious and Base Metal ETFs Draw Attention During Turmoil

Precious metals and exchange traded funds [ETFs] have been all over the map lately; demand is up for some, down for others and prices are struggling to find their way amid the market volatility. One thing is for certain: they’re attracting attention.

Gold has been defying the fundamentals, ignoring its usual correlation with down markets. SPDR Gold Shares (GLD) is down 16.9% in the last month (click on chart below to enlarge), while the S&P 500 is down 15.9%. Gold is generally seen as a safe haven, so investors run for cover with the metal in down markets. But a strengthening dollar has turned the tables on that thinking for the time being, as gold typically moves opposite the greenback.

Gold continued to decline today, as the dollar showed new vigor and oil prices slumped, reports Moming Zhou for MarketWatch.

Copper prices are falling on lower demand. The metal is often used for electrical wiring and pipe, but the global decline in homebuilding has put a dent in the need for it for the time being, according to MarketWatch. Copper sales at one company, Newmonth (NEM), fell 84% in the third quarter.

Chile, the world’s largest copper producer, saw 10.3% less output in September from a year earlier. It’s the third consecutive month year-over-year that production declined, reports Reuters.

A platinum producer in South Africa has cut its annual output forecast for the third time. Lonmin Plc said the full-year platinum output from its concentrators has fallen 16% in the year ending Sept. 30. The company had expected production to improve going into 2009, says Ron Derby for Bloomberg.

South African mines have been plagued all year by production interruptions, caused by a failure of the state-owned power company to meet demand.

Platinum prices have fallen 46% this year, but has gained along with palladium in recent days as precious metals demand rises, says Halia Pavliva for Bloomberg. Until recently, palladium was down 51% for this year.

Car makers account for 60% of global platinum use, and a struggling auto industry is leading lower demand for the metal.

Among funds that might be affected (click on charts to enlarge):

• PowerShares DB Base Metals (DBB), down 27.9% year-to-date

• PowerShares DB Precious Metals (DBP), down 15.1% year-to-date

Comments

[bowman711:]

At some point, when the some $3.5-trillion of 'new' money thoroughly works it way into the economies of the world, people will realize that those 'dollars' they rushed into for safety are only worth some cents. At that point there should be a rush into the only entities that have held value for thousands of years - gold, and to a lesser extent, silver. The only wildcard is if governments evil enough to destroy the world economy in an effort to concentrate power will be evil enough to confiscate the world's gold without paying what it is worth. If that happens, one might as well be holding acorns or pretty sea shells as either dollars (or Euros, pounds, yaun, yen, etc) or precious metals.

2008 Oct 31 08:07 AM