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Why 2016’s gold rush is already running out of steam

Scorpio

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#1
Why 2016’s gold rush is already running out of steam
By Sara Sjolin
Published: Mar 8, 2016 4:00 a.m. ET



Base metals show early signs of a recovery, Citi says


LEONHARD FOEGER
Base metals are about to outshine gold, as Citigroup
Gold has been hailed as the “new black” in 2016. But after the precious metal’s best start to a year since 1980, signs are emerging that a newfound love for base metals could overrun the gold rush, says Citigroup.

Gold GCJ6, +1.03% is up around 20% this year so far, easily outperforming copper HGK6, -0.96% and aluminum as well as other asset classes, including equities. That’s largely because concerns over a serious economic slowdown in China and plummeting oil prices triggered a flight to safety away from riskier choices.

However, with global market jitters recently subsiding as indicated by the CBOE Volatility Index VIX, +3.89% below, it may be time to switch into the industrial metals, the Citi analysts said in a note on Monday. VIX is often referred to as the broader stock market’s “fear gauge.” It tracks option market demand for short-term stock protection.




“Gold likes [economic uncertainty] because it dons its mantle as an ‘insurance hard asset’ at such times. When nerves settle, gold typically underperforms industrial metals as confidence in the new economic upturn grows,” the analysts said.

“With that nervousness subsiding, we may now be in that transition period between gold being the front-runner and that moment when the baton is passed on to the industrial metals,” they added.

Mining stocks hint at inflection point
And there are already signs that the baton-passing is taking place. Higher shares for copper and iron ore miners reflect a sector that’s starting to recover from the 2015 commodity meltdown, even as industrial metals still struggle to stage a solid rebound.

After a whopping 70% dive for Glencore PLC GLEN, -9.19% GLCNF, +8.06% 0805, +20.54% last year, the commodity titan is up 80% year-to-date, marking for one of the strongest rallies in Europe in 2016. Gold miner Randgold Resources Ltd. RRS, -0.62% GOLD, +0.26% is up 55% this year — still a significant rally, but the underperformance relative to Glencore is one of the first signs of a sentiment switch in the metals sector, according to Citi.

Among other major base-metal miners, Anglo American PLC AAL, -8.96% is up 94% and BHP Billiton PLC BLT, -4.77% BHP, +5.38% BHP, +5.57% has jumped 12%.

“The mining equity market is unlikely to wait for 100% confirmation that gold’s superiority over base metals has come to an end. An examination of some of the key mining equities (e.g. Glencore vs. Randgold below) shows that the market may be beginning to anticipate that gold’s period in the sun relative to industrial metals may be coming to an end,” the analysts said.

“We see a potential pre-emption of that inflexion point in the Glencore graph,” they added.




Citi isn’t the only firm with a close eye on the sector right now. Morgan Stanley on Monday cut its rating on Randgold to equalweight and moved another precious-metals miner, Fresnillo PLC FRES, -2.42% to underweight. Both shares dropped in Monday’s trade.

Looking at the performance of the underlying metals, it’s been a mixed picture in 2016. Copper is up 5.9%, aluminum is up 3%, and iron ore is up more than 40% this year after staging a 20% rally on Monday. This means that there’s little concrete evidence yet that base metals have started to outshine gold, according to the Citi analysts.

“However, the recent commodity uptick is now starting to be more broad-based, as shown by the iron-ore chart below. This is a healthy sign, but a very early sign,” they said.



http://www.marketwatch.com/story/why-2016s-gold-rush-is-already-running-out-of-steam-2016-03-07
 

Scorpio

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#2
I still would like to see gold take a shot at 1300 before we get our real correction,
 

luckabuck

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#3
Who needs a correction? I'm pleased to see that graph continue to go upward.
 

Alton

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#4
I find it interesting that silver was not mentioned or even considered since it plays a dual role as both a currency AND an industrial "base" metal.
 

the_shootist

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#5
Who needs a correction? I'm pleased to see that graph continue to go upward.
That's why I was going to say. Just keep climbing baby....keep climbing!
 

the_shootist

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#6
I find it interesting that silver was not mentioned or even considered since it plays a dual role as both a currency AND an industrial "base" metal.
Everyone has an opinion, some of us write articles on the interwebs expressing our opinion....one thing to keep in mind about opinions....opinions are like assholes....everyone has one and most of them stink like shit
 

REO 54

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#7
Frankly I'm looking foward to the S.S.D.'s. ( super summer doldrums )

Mo' stackin @ Less $.