What a Difference Not Even a Year Makes With Metals ETFs

By Tom Lydon | August 14, 2008 | 4:51 PM | 3 Comments

At the start of 2008, investors couldn't get enough of metals-focused exchange traded funds (ETFs). But now the darlings of the start of the year are finding themselves with a different view.

Few metals seem to be immune from the fall.

Gold is now down year-to-date. That's after hitting an all-time high of  $1,030.80 in March. SPDR Gold Shares (NYSE: GLD) and iShares COMEX Gold Trust (NYSE: IAU) are both off their highs by 17.8% and are down year-to-date 1% and 0.9%, respectively. 

Silver has taken an even bigger hit. The iShares Silver Trust (NYSE: SLV) is off its March 5 high by 28.3%, but the fund is up a scant 0.6%. The iPath DJ AIG Platinum TR Sub-Index (NYSE: PGM) has lost 22.1% since its inception on July 8.

Industrial metals haven't been spared, either. Market Vectors Steel (NYSE: SLX) is down 5.7% year-to-date, and is 28.6% off its May 16 high. 

The fact is, the U.S. dollar has been showing renewed vigor lately, with the U.S. Dollar Index crossing above its 200-day moving average. As that happens, commodities - including metals - will feel the hit.

Just as the upside worked earlier this year, when investors ran for cover and hid in gold as a safe haven, the downside reflects our currency's strength and oil's retreat from record prices. The "safe haven" properties aren't as direly needed as they were a few months ago.

If you've been in gold or other metals, you can protect yourself from big losses by holding on to your sell strategy: when your holdings fall below their 200-day moving average or 8% off recent highs, it's time to sell. 

 

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Metals ETF Tom: No offense but if I sold every stock in my portfolio that fell 8% off its recent high, I would not have any stocks left. There simply is too much volatilty today to make that work. The 200-day MA rule is quite sound however. Falling bellow that is a sign of extreme weakness in a stock. The main problem today is that you have many stocks beating estimates, raising guidance, and then selling off. Increasingly, fundamentals are being ignored. That makes me very uncomfortable. We could be entering an extended bear market here. Chris Submitted by Chris (not verified) on Thu, 2008/08/14 - 6:12pm » reply |

Bad Strategy I think selling on any 8% pullback from a high or on a cross below the 200 day is a very bad strategy. If you are trading, you have to buy weakness and sell strength. You had suggested doing this with oil (USO) in a recent post, and you seem to indicate (with the aid of your retrospectoscope) that you had nailed the top in oil by selling out on an 8% pull back from the highs. What your strategy failed to mention is that if you sold out on any 8% pullback you would have traded yourself out of the oil bull market as early as 2003. If you are a buy and hold investor (not a trader), you need to be looking at monthly charts and not concern yourself with 200d MA or 8% pullbacks. If you are a trader, you need to buy as prices go down and sell as prices move up (before they head 8% lower) Submitted by Guy Lerner on Thu, 2008/08/14 - 6:12pm » reply |

Your comments come more than Your comments come more than a few weeks too late. The time to for long-term holders to exit the precious metals trade was about two months ago. Your analysis is similar to those analysts who decide to downgrade a stock a day AFTER a big earnings miss. Submitted by Igor Greenspan (not verified) on Thu, 2008/08/14 - 6:03pm » reply |