The price of gold and gold mining stocks soared today as stocks continued this week’s selloff. Our preferred investment vehicle for gold, the SPDR Gold Trust (symbol GLD), which holds gold bullion, rose 2.4% today as spot gold closed at $980 per ounce. We also hold shares in gold mining companies through the Market Vectors Gold Miners ETF (symbol GDX), which soared nearly 10% today. Silver also enjoyed a strong day, rising over 3% to close just over $15. The price action was accompanied by heavy trading volume, suggesting the precious metals are attempting to break out of the year long trading range. Our near term target for gold is $1,000 per ounce, a level gold has struggled to surpass many times over the past 18 months.

What is behind today’s move in the precious metals? It appears that investors are reducing risk as we move into a seasonally treacherous time for stocks. As we noted last week, stocks have started to react less enthusiastically to good economic news. Tuesday’s broad stock selloff of 3% from the morning highs came after the ISM Manufacturing Index showed the manufacturing sector in August grew for the first time in 19 months. One would normally expect investors to cheer such news, but the selloff suggests the 50% rally from the March lows is exhausting itself. And it’s not just stocks that have been weak of late, but also the commodity complex with the exception of gold and silver.
Stock market selloffs over the past three months have been extremely brief as investors saw the weakness as a buying opportunity. The high volume to the downside yesterday may mean this nascent correction has more to go, but the S&P 500 should find strong support around the 950 level, where the latest rally began. In any event, Friday’s employment report for August should provide good clues for the market’s direction.

Disclosures

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.