After surging to start the week, U.S. equity markets experienced a much rockier session in Tuesday trading as weakness in consumer and basic material stocks weighed on the markets. Nevertheless, the Dow managed to finish the day ahead by 20 points but the other two major indexes, the Nasdaq and the S&P 500, both slid modestly in the session. Commodity markets represented the big mover on the day as gold sank by almost $40/oz. while silver tumbled by 5.2% and oil fell by 2.4% in a rough session across the board for commodities.
Today’s market moving events were a result of continued optimism over the health of the global economy, a situation that helped to limit the demand for precious metals across the board. This impressive reversal in the fortunes of the yellow metal comes just days after the safe haven approached a fresh all-time high and it demonstrates just how quick the rush to the exits has been in the metal markets over the past few days. “People are shooting first and asking questions later,” said Adam Klopfenstein, senior market strategist with Lind-Waldock in Chicago. Meanwhile, investors also focused in on the Federal Reserve Minutes which were released in the middle of the trading day and gave insights into what the Fed was planning for QE2. The minutes showed that the Fed officials didn’t believe that the economy was growing quickly enough to chip away at unemployment and that any recent improvements in sentiment is not enough to change the Fed’s mind about the bond buying program, suggesting that the status quo will continue for the time being.
One of the biggest gainers in the ETFdb 60 was the iShares FTSE China 25 Index Fund (FXI) which rose by 1.3% in Tuesday’s session. Today’s jump came, ironically, after a report of a slowdown in Chinese manufacturing. Although generally not a good sign, the decline suggested to many that inflation was decelerating in the world’s most populous nation and that an aggressive campaign by the Chinese government to fight inflation may not be necessary after all. “Inflation pressure is expected to ease for the time being and the global recovery is gathering momentum,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “It’s probably a good time for stocks to perform well.” [see more charts of FXI]
Unsurprisingly, one of the biggest losers on the day was the Market Vectors Gold Miners ETF (GDX) which tumbled by 3.0% on the day. Although it remains unclear just why precious metals performed so poorly today, a stable outlook from the Fed and a slightly stronger dollar didn’t help matters for the yellow metal. “The market is being led lower by significant weakness in the commodity space,” said Andrew Ross, a partner and global equity trader for First New York Securities LLC. “The market is in desperate need of some sort of pullback. The weakness in commodities as well as the strength in the U.S. dollar has brought selling pressure into equities. The market was remarkably resilient into the end of the year, and the result was a very extended market.” Losses were especially severe in two of the four biggest components of the fund, AngloGold and Newmont Mining Corp, which both sank by more than 3.3% on the day, giving a very poor start to 2011 for one of the top performing sectors of the previous year [see more fundamentals of GDX here].
Disclosure: No positions at time of writing.