Gold will post its first consecutive quarterly loss since 2001.
And since mid-2011 gold has been a money loser. If you're perplexed
by that, keep reading. Even silver - which has been a star
performer over the past few years - has followed gold prices lower.
Will precious metals rebound?
The precious metals market consists of four key metals: gold,
silver, platinum, and palladium. Thus far this year,
exchange-traded products (ETPs) linked to gold (NYSEARCA:GLD) and
silver (NYSEARCA:SLV) have fallen 5.18% and 7.25% respectively.
Conversely, platinum (NYSEARCA:PPLT) and palladium (NYSEARCA:PALL)
have outperformed on a relative basis.
Has the enthusiasm for investing in precious metals faded?
According to the latest
Kitco News Gold Survey
, an overwhelmingly 78.57% are still bullish on gold compared to
just 14.29% that are bearish. Similarly, Bloomberg's Commodity
Sentiment Gold Bullish readings have doubled a low of 29.03 in late
February to 64.
From a sentiment angle, this doesn't bode well for gold prices.
Why? Because when the majority of market participants are in
agreement about the direction of an investment, it typically
results in an opposite or completely unexpected outcome.
Gold's Trend is Down
Despite a seemingly perfect macroeconomic backdrop, a la Europe's
latest banking crisis in Cyprus, gold hasn't been able to make any
headway. The buy-and-hold gold trade isn't working today and hasn't
worked since August 2011 when GLD peaked at $184.59.
What about investment demand?
Although investment demand for gold ETPs has surged over the
past five years, growth is slowing. At the end of 2012, gold ETP
demand had a year-over-year decline from 23% to 21%. Investment in
gold was down to 424.7 tonnes when gold ETPs were combined with bar
and coin investments. That compares to 462.9 tonnes in
Interestingly, gold demand has been strong among world banks. In
Q4 2012, global central banks accumulated 145 tonnes of gold, the
second highest quarterly total since the height of the credit
crisis in Q2 2009. But it still hasn't been enough to kick gold
Stick with What Works
"Prices and trends are really the simplest indicators you can
find," said Gerald Loeb. "Profits can only be made safely when the
opportunity is available and not just because they happen to be
desired or needed." This is a similar philosophy to how the ETF
Profit Strategy Newsletter operates.
On Feb. 14, via our Weekly ETF Pick update we wrote about a high
probability setup in the precious metals category:
"Despite a rising stock market, the Market Vectors Gold
Miners (NYSEARCA:GDX) has lagged both the broader U.S. stock
market along with the SPDR Gold Shares (
) by a very significant margin. The current downtrend for mining
stocks is still in place. Furthermore, a double digit slide for
gold would likely translate into a 20%+ loss in mining stocks.
This scenario offers some big upside potential for bears. Buy the
Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST) at
Our DUST trade gained 29.6% in the week after we
recommended it. And our GDX put options alert in that same
report are still open and have already generated a +100% gain.
While it's true that gold equities aren't the same as physical
gold, the subpar performance for both is a red flag for bulls.
Another red flag is a lack of gold volatility (^GVZ), which has
been a virtual replica of depressed stock market volatility (^VIX).
Missing volatility is a tell-tale sign of complacence.
What price levels do gold and silver need to hold before a
complete breakdown occurs? What levels would signal that a price
rebound is underway? The
ETF Profit Strategy Newsletter
via its Technical Forecast identifies key support levels in metals,
stocks, bonds, the euro and other major ETF
Watch our ETF Channel @