Is The Gold and Silver Rally In Trouble?

freefall downOn the surface, gold and silver prices themselves didn’t have much of an eye-opening fall last week, but when you peer in at the gold and silver mining ETFs, you can see there was considerable damage done, especially with the leveraged commodity ETFs.

Let’s look at how far prices fell from last Friday’s close to this past Friday’s close:

Direxion Daily Junior Gold Miners Bull 3X ETF (NYSE:JNUG) – down $56.36
Direxion Daily Gold Miners Bull 3X ETF (NYSE:NUGT) – down $18.65
VanEck Vectors Gold Miners ETF (NYSE:GDX) – down $1.09

VelocityShares 3x Long Silver ETN (NYSE:USLV) – down $1.82
iShares Silver Trust (NYSE:SLV) – down $0.41

In total, we witnessed losses ranging from 2% all the way down to 20%. Anyone trading these (our guess is most folks in leveraged ETFs aren’t putting volatility grenades like these in their IRAs or at least shouldn’t be), needs to pay attention to how well commodity stocks have reacted to any hints of stocks selling off and if this week’s sign of non-participation, especially on Tuesday, signals too many traders are overly leaning to one side now.

This week’s 2-day Federal Reserve meeting on interest rates should produce an interesting test to see if we may be in for a rough rest of the summer for traders and investors playing the long side. We have seen most non-event Fed announcements result in commodity prices spiking higher. If and when the federal reserve starts to hint interest rates may in fact have to be monitored closer for pending rate hikes, the conditions for the commodity bull phase could quickly turn into a stampede of selling. The other factor to pay attention to is if we see commodity prices begin to ignore bad news and too go down with the rest of the asset classes.

In what has been an everything bull market of stocks, commodities, and bonds all gaining simultaneously, there is the greater risk for reversion where all asset classes begin to be harmonious, but in the opposite direction.

We’ll all be watching for the signals ahead!

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