Gold, Silver Stocks Punished as Investors Switch to Base Metals

Source:

"An increase in risk appetite among investors has dampened the price outlook for gold, and silver; platinum group metals (PGMs). . ."

Over the past 10 trading days, patterns among global portfolio flows show that investors have withdrawn significant funds from listed precious metals stocks, and switched into virtually every other resources subsector. This includes diamond miners, which represent the most heavily damaged area.

Looking broadly in terms of the extent of stock price recoveries, the most favored areas include specialist miners of copper, zinc, tin and nickel. Again, just as investors have switched out of listed precious metals stocks over the past 10 days, so too the prices of gold and silver exchange traded funds (ETFs) have been falling. Dollar gold bullion has traded down to multi month lows.

The switches out of precious metals areas have apparently been motivated mainly by accumulating evidence that the global "recession" is over; as the Bank Credit Analyst puts it, "with more evidence of a bottoming in global growth, investor attention has shifted to the strength of the recovery." The U.S. leading economic indicator and a few of BCA Research's global leading indicators appear to have bottomed; indeed, even some global coincident economic data have bounced off of their respective lows.

An increase in risk appetite among investors has dampened the price outlook for gold, and silver; platinum group metals (PGMs), where demand is more linked to industrial activity have recovered firmly from lows, but not to the point where investors are flocking into PGM miners.

Measured from stock price lows, typically seen among mining stocks during October and November 2008, listed copper stocks have now delivered the best "bounce," among substantial global equity subsectors, amounting to 138% on a weighted average basis. Looking at smaller groupings, Tier II gold stocks have in fact done better, as have primary silver miners, where the investible market value is just under USD 13bn. Gold stocks overall, where the global investible market value is just around USD 208bn, have bounced by 124% on average, substantially down on the 188% seen 10 days ago.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe