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Market Fear Fueling Precious Metal Prices

7 September 2013 in Trading Ideas

With the broader stock market recently coughing up a decline of more than 4%, many investors are fleeing for what they perceive as safe alternatives.

And for some, nothing glitters like gold.

Yes, the yellow metal that spent the first half of the year tanking in price is back on a tear, with its value surging 16% in a month. That increase has pushed up the stocks of many gold miners, and other gold-investment alternatives, including the Precious Metals motif, which is up 17.2% in the past month, and is down 37.8% so far in 2013.

precious metals motifThe S&P 500 is down 1.9% in the past month, but has gained 14.8% in 2013.

As the Wall Street Journal recently noted, precious metals investors have been closely watching economic data and reading the virtual tea leaves coming from Federal Reserve governors as a gauge for how and when the Fed will start dialing back its stimulus programs. Some investors buy gold and silver as a hedge against the inflation that can follow programs like the Fed’s purchasing of $85 billion of bonds a month.1

Hopes that the Fed’s program will be in place longer than anticipated have helped fuel the recent rise in precious metals, the Journal said. That’s because recent economic data hasn’t been exactly gangbusters. While the employment situation has appeared to stabilize, recent durable goods orders and new-home sales data were thought to be disappointing.

Oh, and did we mention the possible military strike on Syria? Rising tensions in the entire Middle East, as well as the possibility of US military intervention are contributing to the run toward alternatives to riskier asset classes.

(Silver, by the way, has been no slouch either, ending August as the month’s top-performing asset class, beating out Brent crude oil and the rebound in Chinese stocks.)

Of course, most investors hardly need to be told that precious metals are hardly risk-free, as evidenced by the fact that it’s still down about 18% this year after its latest runup.

For some market analysts, that has meant scanning for alternatives to the alternatives. Jim Cramer, stalwart of CNBC and TheStreet, recently tagged a dozen stocks that he likes amid the current pullback, under the strategy of getting solid names at cheaper prices.2

For example, Cramer said he likes both Celgene and Gilead Sciences in the biotech space. Those two stocks comprise a 28% weighting in our Biotech Breakthroughs motif, which is up 1.6% in the past month and has increased 46.5% so far in 2013.

1Steven Russolillo, “Morning MoneyBeat: Gold Starting to Glitter Again,” WSJ.com, Aug. 27, 2013.

2“Cramer’s 12 stock watch list amid pullback,” cnbc.com, Aug. 28, 2013, http://www.cnbc.com/id/100994688, (accessed Sept. 4, 2013).

  1. 18 Sep at 3:03 pm

    I just read about gold prices going down today in CNNMoney, is this true?