Gold prices peaked twenty months ago. During the ensuing thirteen months, “moving sideways” is probably the best description of its price action. Gold has been consistently moving lower the past seven months, so even before the events of the past ten days unfolded, gold was in an established negative trend. For the week ending last Friday, gold bullion ETFs dropped 5.7% while the stock market posted gains of 2% or better.
This Monday, gold futures plunged 9.4% for the largest one-day drop in 30 years. The cited reasons include global economic slowdown and fewer fears that central-bank policies are stoking inflation. Prices dropped through key technical levels, adding to the downside action. Gold was a top-performing asset last decade. Now, it is more than 27% below its peak, deeply entrenched in a bear market, and back to the same price level of two-and-a-half years ago.
As bad as things have been for gold, it has been much worse for silver and mining companies. Silver is off more than 17% in April and has lost more than half its value in less than two years. The Market Vectors Gold Miners ETF (GDX) is down 24% so far this month and is more than 55% below its peak.
Monday’s negative action in precious metals spilled over to other commodities and the stock market. The Dow Jones Industrial Average was whacked for 265 points, and small cap stocks suffered even larger percentage declines. Economic reports out of China contributed to downside activity. China’s GDP growth slowed to 7.7%, a figure the U.S. would love to see, yet seems to signal the end of rapid growth for China.
If investors didn’t have enough to worry about, North Korea escalated its recent nuclear saber rattling and terrorists struck the Boston Marathon. A failed attempt to send poison-laced letters to President Obama and Mississippi Senator Wicker also added to investor nervousness.
On a more positive note, the Fed issued its Beige Book of economic activity today. “Overall economic activity expanded at a moderate pace during the reporting period from late February to early April,” according to the summary of anecdotal reports. Inflation is not a current concern of the Fed, as price pressures remain subdued with the possible exception of home prices and construction materials.
Health Care moved up one spot to retake the lead after a one absence. Utilities, which held top honors for a week, eased down to second place. Telecom’s dramatic climb up the rankings continues again this week. It was in ninth two weeks ago and today finds itself in third. Consumer Staples has been a market favorite for many months and keeps its “above average” status this week. Real Estate slipped two notches to fifth while maintaining strong momentum. Consumer Discretionary, Financials, and Industrials keep the same positions they occupied last week. Technology was in last place a week ago, but it managed to climb out of that hole for today’s rankings. All eleven Sectors had positive trends in our previous update. Today, Energy and Materials are registering negative trends, and they both slipped a notch in the rankings with Materials sitting on the bottom.
All Style categories fall into one of two groups today. There are the seven vying for first place, and the four virtually tied for last place. Market capitalization provides the demarcation line between the two groups. Mid-Caps and larger categories are on top, while everything smaller is at the bottom. Only three momentum points separate first place from seventh. Relative ranking within this upper tier is nearly meaningless, although Mid Cap Value retains its top-ranked honor. The bottom group is even more tightly packed. The three Small Cap categories have identical scores, and Micro Cap is only one point better. From a purely technical perspective, Value has a slight edge over Growth at all capitalization sizes. However, the nearly identical scores render this difference moot.
Last week, Japan stood head & shoulders above the crowd. This week, it extends its lead over other global regions to near-epic proportions. Japan’s trend score, which is an annualized value of its intermediate-term momentum, indicates it is currently trending upward at the rate of 58% per year. This is 37 points ahead of second place U.S. and 94 points better than last place China. Japan is now preparing the “third arrow” of its revitalization plan, which will target deregulation and economic overhaul in hopes generating new startups with the potential to create disruptive forces. Fiscal spending and monetary easing were first two arrows, and they have propelled the market there much higher. Europe managed to ease back up into a positive trend this week, joining the ranks of other developed regions. However, its newfound status is tenuous at best, and Europe could easily be back in negative territory in our next update. Four categories are in negative trends including Canada and the three emerging market designations.
“The easiest thing to defend in Washington is the status quo.”
Mark Calabria, director of financial regulation studies at the Cato Institute on the government’s new role as the largest financier of home mortgage
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