The weakness in equities drove investors to metals again on Wednesday. Gold futures reached yet another record in trading as the previous day’s stock gains were erased. Investors have needed little encouragement outside the general economic volatility to buy gold, but the U.S. Federal Reserve’s decision to maintain low interest rates through 2013 provided further incentive. The near-zero interest rates keep the opportunity cost for metals low across the board.
Gold for December delivery reached $1,801 an ounce in intra-day trading following the interest rate and the Fed’s admission that the economic recovery will be more plodding than originally expected. The slowing growth of the U.S. economy, the interest rates and European debt contagion were all in focus today, continuing to drive the price of gold. A potential credit-downgrade for France announced early this morning led investors to worry that the larger Eurozone countries could buckle beneath their investments in nearby economies. The combination of these drivers has prompted a July super rally that has seen gold tack on more than $160.
These are the same factors that likely led to a 10-plus percent rise for ProShares Ultra Silver ETF (ACQ) which actually outshined the attention-getting gold today. In spite of its recent success, silver remains well beneath its 52-week highs. Platinum and Palladium were also slightly higher but Platinum has slowed its pace compared to gold and silver. The metal is primarily used for industrial purposes meaning a slower economy could threaten its value and utility.
The rise in gold and silver for the day trickled into mining shares which have still risen disparately compared to gold prices throughout the rally. Today; however, they were among the only equities in the black. Shares of Barrick Gold Corp (ABX) pushed higher on high volume as did those of competing miner Goldcorp. (GG). Silver Wheaton Corp (SLW) also did well on the strength of the metal today.
Considering the low opportunity costs of gold right now, it’s no surprise mining stocks and the gold, silver and metal ETFs were thriving today. Slowing volume accompanying the rises; however, are indicative of the lack of investor confidence in the direction of the market. Another see-saw day in trading like Tuesday could reverse today's gains.
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