U.S. stocks were hard hit on Wednesday, ending a two day rally as concern over diverging views on the execution of the second bail out in Greece within the Eurozone sounded an alarm. Technical indicators and hope that resolution to the potential default was in sight buoyed the market earlier in the week only to collapse when positive data failed to reveal itself. One way investors are looking to recover the recent losses is by selling off commodities, with gold and silver being traded in favor of cash. Copper reached its lowest point since August 2010. Meanwhile, gold, while significantly beneath its peak levels remains pricey and investors that bought in early will likely still make a hefty profit at these levels.
Fear of European debt contagion has some worried about the future availability of liquidity. The opportunity to turn gold into cash at these still-high levels is a draw for investors with these concerns and the speed of their gold departure has many others fearing time might be running out. Gold prices approached $1,600 a troy ounce today, a significant slide from its peak of 1920.94 on Sept 6.
Gold’s speedy decline is bringing the precious metal more in line with the shares of its producers. Miners have been underperforming against gold this year as volatility in equities discouraged risk-averse investors. During the first half of the year gold added 6 percent while miners fell by 12 percent. In the latter half of the year, when gold’s bull run no longer appeared to be a bubble, traders came around to mining stocks. The recent interest in the dollar as a new safe haven and analyst’s suspicion of a major correction has led to an exodus from mining shares.
Shares of Goldcorp. (GG) and Barrick Gold (ABX) were both down sharply for the day continuing losses that began last week. New Gold USA (NGD) was among the sector’s worst performers percentage wise, falling close to 9 percent.
Hardest hit though were silver miners which seem to suffer for an image problem on Wall Street. Silver plays the dual role of being regarded as a safe haven while also offering industrial uses. Whether the economy is good or bad, silver, from a technical standpoint, should be reaping the benefits. Instead, silver’s role as a safe haven is being reconsidered as investors make the switch to gold and the notion it will be in high demand amidst a flat growth period for the United States is unlikely.
The metal is falling on both accounts, sliding below $30 in after-hours trading and down a massive 25 percent this month alone.
Silver miners are paying the price with Silver Wheaton Corp (SLW) down 7 percent on high volume and down 22 percent for the month. Pan American Silver (PAAS) also tumbled for the day and is lower by 16 percent for the month.
The silver market remains characterized by a surplus and should there be an upside it will be the result of investors snapping it up at low prices.
Until a resolution is met on the Greek crisis it will be difficult to determine the direction of precious metals with the exception of copper. Copper is at a low and as an industrial metal is will likely stay that way until positive indicators for global growth appear.
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