Divergent Metals

Today’s stock rally includes strong precious metals with base metals being flat.  Jim O’Neal coined the term BRIC and now says “The big commodity play on China is finished.”  (Bloomberg video).  The BRIC nations stock markets are minor disasters (Kimble Charting).  Six indicators pointing to China’s deteriorating conditions at Sober Look.  Decision time has arrived for copper (chart).

Recession talk exists (Ritholtz) and OECD predicts weak growth in Canada, G7 partners for rest of year (Globe and Mail).  Yet the U.S. economy has been a relative winner among the Western world.

The Independent Stock Analysis thesis continues to be precious metals over materials and base metals.  Western world money printing (Reuters) is primarily gold and silver positive, with oil another beneficiary.  Base metal and material prices need China growth to re-accelerate on meaningful fiscal stimulus, something unlikely in the near term (Marketwatch).

Doug Kass startled me saying “It now appears that China’s third-quarter real GDP growth might be 6.5% or lower.” (The Street).  Become accustomed to headlines like this: Low demand from China dampening Asian coking coal outlook in short term: UBS at Platts.

Meanwhile, Gold is Quietly Breaking OutAll Star ChartsGold Glitters in September at Bespoke.

The $HUI and GDX are approaching their 200 day moving averages.  Perhaps some digestion occurs next week on the charts.  ISA has been covering the precious metals ad nauseum on our gold page.

The royalty stocks are fundamentally superior.  With FNV and RGLD having stretched valuations my current favorite is Silver Wheaton.  SLW presents this afternoon.  An alternative view on silver:  chart.  Silver breakout from Daily Wealth:

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8 thoughts on “Divergent Metals

  1. Mr “Oh So Correct” O’neal is right about the end of the comods run…The price decline will be slow and may take a period of three to four years before it bottoms…

    We are planning an entry point into BOM, a double, trouble short ETN…

    So much for the hyper inflation theorists…

  2. Meanwhile, overnight China approved 30 infrastructure projects, adding to 25 rail projects already approved this week: “China has approved plans for Rmb1tn ($158bn) in infrastructure spending…The money will be rolled out over several years and the government has not described the investments as a stimulus package…implementation of these projects will begin in the coming months…”

    http://edition.cnn.com/2012/09/07/business/china-stimulus-infrastructure/index.html

  3. So that explains why BOM went BUST today, with a 6% drop…

    Tanks for the head up, Mr Butler…

    The trend is still down, IMHO..

    • All leveraged ETF’s and those dependent upon rolling futures are unsuitable except for intraday trading. IMHO bringing those products to market is criminal.

  4. We held, DTO, for several months and did not experience a decline in NAV. We selected this fund over others, because it maintained a true tracking of the underlying derivative…

    I believe the main element is whether the daily rollovers involves futures that are in catango, which does in fact increase the operating cost of the fund..

    Please correct me if I am wrong, Mr Butler..

    • Some ETF’s work well for the intended purpose.

      Others are disasters:
      1) ETF’s which hold futures get hurt by rolling contracts into contango. UNG is the poster child.
      2) Leveraged ETF’s are ‘reset’ daily, utilized swaps and loose on the ‘vig’ to counterparties.
      3) Always look under the hood. The XLE has as large a natural gas and refining component as oil. KOL is mostly international coal.

      In short, always do due diligence!

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