Precious metals are the talk of the exchange-traded investing town. Not only are funds like PowerShares DB Precious Metals ETF (DBP) demonstrating strong relative strength, but the miners have also caught the “gold bug.” Specifically, Market Vectors Gold Miners ETF (GDX) has seen strong inflows as well as significant capital appreciation.
Unfortunately, metal mania hasn’t extended to industrial “faves.” For instance, the iPath Copper ETN (JJC) remains roughly 12% off its August peak and sits well below a critical 200-day moving average. Indeed, when Dr. Copper hints that the world has a head cold, risk taking usually suffers.
Initially, copper struggled on reduced demand from China. Today, it may be struggling on a global economic slowdown with Europe at the epicenter.
With the probability of a bankruptcy by a European Union member increasing by the minute, is anyone shocked that Germany was August’s weakest performer? The iShares MSCI Germany Fund (EWG) dropped -20% in the single month, and is 35% off its 2011 highs. That is one brutal bear of a beat down!
Ironically, there may not be a country in Western Europe with a more resilient economy. Yet imagine the disdain that Texans might have for bailing out fiscally irresponsible states like California, Illinois and New York? Now multiply the anger by a factor of 100.
Simply put, Germans may not choose to continue bailing out Greeks, Italians and/or Portuguese. What’s more, until there is better clarity on how a bankruptcy may affect German banks (or how German exporters may be affected), the iShares MSCI Germany Fund (EWG) is likely to see more selling activity.
Could you buy EWG on the dips, on a valuation basis? You could. However, I’m sticking with the momentum winners, like Market Vectors Gold Miners (GDX) and iShares MSCI Thailand (THD) and Market Vectors Indonesia (IDX) for the time being.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.