(Written by Rebecca Lipman. List compiled by Alexander Crawford. Insider data sourced from Yahoo! Finance, institutional data sourced from Fidelity.)
Wednesday was not a good day for precious metals, especially for gold, which was caught up in a strong wave of panic selling.
Commodities faced their biggest drop in 11 weeks, led by gold and crude oil, reports Bloomberg. Gold broke through its 200-day moving average ($1,619) this morning for the first time since early 2009.
The Wall Street Journal cites Jon Nadler, senior metals analyst at Kitco Metals, who says a break below the 200-day average usually marks the beginning of a bear market.
Gold is currently trading around $1,575 per ounce. It’s a long way from its 52-week high of $1,916.20.
Silver futures, which often shadow gold’s moves, closed down 7%, copper lost nearly 5% and palladium sank almost 7%.
Explanations – Demand for Liquidity
CNBC reports “the main reason traders cite for the sell-off is the weaker euro and stronger dollar, making dollar denominated metals more expensive to own.”
But that’s not the full story. After a “less than stellar year” traders are looking for liquidity, and what better to cash in than gold? After all, gold prices have practically soared, but there’s heavy uncertainty if it will ever go higher – the motto has become “time to get out while you still can.”
Bloomberg explains the dip as a reaction to mounting concerns that “European leaders are failing to stem the region’s debt crisis, eroding demand for energy, metal and crops.”
“The panic selling started in gold and spread to oil and base metals because investors are disappointed there’s not enough being done by central banks globally,” said Nic Johnson of Pacific Investment Management in California.
The Banks’ Role
CNBC explains that “normally, banks with gold can usually borrow dollars against their gold holdings for less than they can borrow dollars outright. That is not the case right now.”
As a result, banks are lending gold at a premium to dollar rates. “This causes a negative lease rate, an unusual situation which implies underlying concerns about counterparty risk in the system”
Do you think commodities will continue to fall?
We were curious what sophisticated investors had to say about this new trend.
To find out, we started with a universe of basic materials stocks. To refine the quality of our list we searched for those with significant buying from the “smart money” investors: insider executives and institutional investors.
Institutional investors have access to sophisticated research, while company insiders know more about their companies than any other investors. When these groups of investors buy a stock, it’s a signal to take a second look.
The “smart money” seem to think there’s more upside to these basic material stocks–do you agree?
Analyze These Ideas (Tools Will Open In A New Window)
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List sorted by market cap.
1. Rex Energy Corporation (REXX): Operates as an independent oil and gas company in the Appalachian, Illinois, and Denver-Julesburg Basins. Market cap of $602.51M. Net insider purchases over the last six months at 77,325, which represents 0.22% of the company's 34.97M share float. Net institutional shares purchased over the current quarter at 3.7M, which represents 10.58% of the company's share float.
2. Golden Minerals Company (AUMN): Engages in the exploration and development of precious metals and other mineral properties in Mexico and South America. Market cap of $195.22M. Net insider purchases over the last six months at 24,500, which represents 0.09% of the company's 28.06M share float. Net institutional shares purchased over the current quarter at 1.3M, which represents 4.63% of the company's share float.
3. Constellation Energy Partners LLC (CEP): Engages in the acquisition, development, and production of oil and natural gas properties, as well as related midstream assets. Market cap of $51.11M. Net insider purchases over the last six months at 19,501, which represents 0.14% of the company's 13.46M share float. Net institutional shares purchased over the current quarter at 317.1K, which represents 2.36% of the company's share float.