Is the Party Over for Commodity Stocks?

By Brad Zigler

There's an end for every party, a time for the lampshade-hatted to call it a night and head home. Some observers think Monday may have been just that for commodity stocks, at least relative to commodities themselves.

The World Bank's pronunciamento of a 2.9% shrinkage in the global economy sent markets tumbling Monday. Commodities such as metals and oil got whacked. Equities got whacked. Commodity stocks got double-whacked.

Take gold for example. Spot COMEX gold dropped $15 an ounce, or 1.6%, yesterday. The SPDR Gold Shares Trust (NYSE: Arca: GLD), keyed to the London morning fix, dropped 1.5%. Gold mining stocks, proxied by the Market Vectors Gold Miners ETF (NYSE Arca: GDX), plummeted 6.9% to close at $35.74.

Monday's metals sell-off was a continuation of the seasonal downturn taken earlier this month. Stocks have been wobbling lately as well, but Monday's market action sent mining issues through the critical 50% retracement level of last year's gold swoon. Thus, support at $36.35 has now become resistance.

The GLD/GDX price ratio jumped up above its 50-day moving average Monday, favoring the bullion-backed trust.

Gold (GLD) vs. Gold Stocks (GDX)

Monday's stock turnaround wasn't confined to metals. Agribusiness stocks, represented by the Market Vectors Agribusiness ETF (NYSE Arca: MOO), have been lagging behind the futures-based PowerShares DB Agriculture Fund (NYSE Arca: DBA) recently. Monday, the ag sector price ratio broke below its 50-day moving average, to the advantage of the futures ETF.

Agribusiness Stocks (MOO) vs. Agricultural Futures (DBA)

The question for investors now is whether Monday's market action represents a reason to realign their exposure to stocks or to just grin and bear it as a manifestation of normal market volatility.

When the market opened Tuesday morning, investors treated Monday as a buying signal for gold mining and agribusiness shares, but bids for both dropped within an hour or so.

This is shaping up to be a real test of the stock bulls' resolve.

Comments

[Roger Knights:]

South African gold mining companies are in the midst of wage negotiations with their labor unions. The companies claim they don't have money to pay the union's demands. A falling gold price would back up their assertion. Possibly, they could be selling some of their future production (hedging) in an effort to drive down the price.

Jun 24 07:22 AM

[DONE_SONZ:]

Gold fundamentals remain.

Jun 24 07:25 AM

[Maxe Paul:]

What complete garbage, gold is down because that is what the market says, down. I have never heard this one before, good try though! Gold bugs always have an excuse.


On Jun 24 07:22 AM Roger Knights wrote:

> South African gold mining companies are in the midst of wage negotiations
> with their labor unions. The companies claim they don't have money
> to pay the union's demands. A falling gold price would back up their
> assertion. Possibly, they could be selling some of their future production
> (hedging) in an effort to drive down the price.

Jun 24 09:59 AM

[dsrtwriter:]

Commodities including gold will remain a hedge component of the portfolio. If they drop a lot that would be a great time to overweight them,for inflation will re-emerge, just when we think it will not.

When we think inflation is near term, then that is the time to worry about commodities.

Jun 24 12:38 PM