Friday, February 15, 2013

Precious Metals Clobbered As Stocks Climb Higher

I rarely pay attention to the day to day action in the markets because I stay pretty busy working on other things, but days that precious metals get hammered I get the emails rolling in. They usually fall in two sets of camps: excitement and worry. The first email I got this morning (excitement) went something like this.

"Silver hammered again. Back below $30. I'm stepping in here to make a physical purchase, and I will track it down with more buying if it falls again."

Another email (worry) went something like this:

"Gold crushed again this morning. You must be really happy." (sarcastic)

Here is the mainstream media's overview discussing the end of the gold market. From Bloomberg today:

"Gold traders are the most bearish in more than a year on mounting speculation that improving economic growth from the U.S. to China will curb demand for this year’s worst-performing precious metal. Twenty analysts surveyed by Bloomberg this week expect prices to fall next week, while 11 were bullish and three were neutral, making the proportion of bears the highest since Dec. 30, 2011. Hedge funds cut bets on higher prices by 56 percent since October and are approaching their least bullish stance on gold since August, government data show."

As a quick reminder, recent bottoms in the gold market occured the last week of December, 2011 and August of last year (see underline above) during the point of maximum pessimism toward the metals.  I certainly won't tell you what to do, as I am not a financial advisor, but if I were a betting man (I am), I would take a long precious metals and short US stocks pair trade here.

$1600 Gold and 14,000 DOW as of this writing. I think you may be upset later this afternoon or even tomorrow morning (if you're a day trader), but you'll be very happy in 12 months.

See the complete 2013 Outlook for more on sentiment and value.

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