Is The Bear For Gold-Oriented ETFs Over?

Non-residential construction, home building and manufacturing have been decelerating. Nowhere is this more evident than in the new 52-week lows being set by industrial metals like iPath Copper (JJC) and multi-sector metals investments like PowerShares DB Base Metals (DBB). The latter tracks a rules-based index composed of futures contracts in widely used metals like aluminum, copper and zinc.

DBB 3 Years

Many attribute the commodity price declines to weakness in global economies such as China, Brazil and Russia. Granted, slowdowns in emerging market economies have had an adverse effect on industrial metal prices. Still, Americans may be foolish in ignoring economic warning signs on the home front. Mortgage applications and home sales have been declining precipitously. Services sector growth in the U.S. tumbled to a four-year low in February. And commentators routinely marginalize below-trend employment gains by tethering job vulnerabilities to the cold weather.

Erratic weather patterns may indeed be boosting some commodities, like livestock, grains and coffee. PowerShares DB Agriculture (DBA) is up nearly 14% on a month-over-month basis and close to 17% over three months. Meanwhile, United States Natural Gas (UNG) has rocketed as the need for heat has risen sharply. Even drought conditions on the west coast may be partially responsible for the recent relative strength in water companies via Guggenheim Global Water (CGW).

CGW Versus SPY

On the other hand, declaring  emerging market woes as the singular cause for base metal price depreciation and/or extreme weather as the sole reason for agriculture or natural gas price appreciation seems myopic. There may be other forces that influence these and other commodities. In all likelihood, uncertainty about U.S. manufacturing, concerns about the well-being of the U.S. consumer as well as wariness of Federal Reserve monetary policy also affect the price movement of natural resources as well as the share prices of natural-resources-related companies.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the ...

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