Anyone closely following the action in precious metals markets cannot help but notice an erratic pattern-- especially in the last five days-- that has left major precious metals ETFs almost unchanged. What can explain this pattern?
Major Precious Metals ETFs / Stocks
Five-day Performance (%)
3-Month Performance (%)
12-Month Performance (%)
SPDR Gold Shares (GLD)
iShares Silver Trust (SLV)
Freeport-McMoRan Copper and Gold (FCX)
Three conflicting signals have been pitting the bulls against the bears. The first signal is stronger inflation numbers out from China, a bullish signal for precious metals, as inflation is the ultimate hedge against inflation.
The second signal is stronger U.S. employment data (last Friday), and stronger retail sales toda--, both bearish for the precious metals, as they diminish the prospect of another round of Quantitative Easing (QE) by the Fed-- the fuel for the precious metals rally in the aftermath of the 2008-9 crisis.
The third signal is the fading of sovereign debt concerns for the eurozone, especially after Ireland managed to tap the financial markets this morning to finance its debt needs. Besides, nobody is talking about the break-up of the eurozone anymore.
What do these conflicting signals mean for investors?
It depends on the investment horizon of different investors. For short-term investors, they mean that the precious metals markets will remain range-bound, as bulls and bears are to be caught in a bind. That's an ideal environment to trade on both sides of the market. For long-term investors, they mean that precious metals are at a turning point, and can go either direction, depending on which signal dominates. That's a difficult trade to make at this point. I will wait for better visibility before I make bets in either direction.
Disclosure: I am long FCX.
Additional disclosure: Short on GLD