Precious metals and precious metals miners have been stellar performers in 2011, yet the peculiar “equity fatigue” that I referred to several weeks ago is still plaguing the sector. The metals continued to make marginal new 52-week highs, but many mining stocks and related exchange-traded funds (ETFs) have failed to do so. As long as the market is shrugging the ECB rate hikes as benign, I think there is room for a correction in the precious metals space.
It almost feels that the stocks have been reluctantly dragged up with the metals of late. As I write this, a small correction after fresh 52-week highs in the metals is being met with aggressive selling in the mining stocks. I don’t want to read too much into this, but a correction of the size we saw back in January is likely to happen at any time.
The underperformance of silver stocks that you can see in the chart above — denoted by the Global X Silver Miners ETF (NYSE: SIL) compared against the price of the iShares Silver Trust (NYSE: SLV) — is much more notable than that of gold stocks against the price of gold. But, considering that silver has done better than gold in 2011, it is even more telling as to the extremes of this peculiar equity fatigue in the mining space.
While I remain a long-term bull on gold and silver, I would not chase any strength in the stocks here, and I would look to be a buyer only on a meaningful shakeout. Aggressive traders can probably make money with long metals/short miners ETFs trades, or outright bearish positions.
Tactical shorts don’t contradict my long-term strategic bullish view on precious metals — both can work if you strip out the rampant demagoguery from the sector.