Investors avoid gold; but large-cap UK miners look near-term positive

Today we look at whether now is the right time to rotate out of gold, silver, platinum and Precious Metals ETF (GDX) into UK large-cap miners like Rio Tinto (RIO), BHP Billiton (BHP) and Glencore (GLEN)

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The record highs in US stock markets is calming fears. Time to rotate out of gold?

Since ancient times, investors always buy gold during uncertain times. So as the world economy flatlines, gold rallies. It is no coincident that gold’s rally in the third quarter coincided with the huge rally in sovereign bonds.

However, this fearfulness may abate if stock markets continue to rally. The past two weeks saw new highs in the S&P 500, Nasdaq and Dow. This means that many investors are starting to sit on sizeable profits on their holdings. With profits come greed.

Hence, there was a distinct lack of buying follow-through in gold rebounds. The bounce into $1,520 last week, for example, saw no new breakout. Instead, prices regressed once more to the range support at $1,480 (see below).

Silver also suffered from renewed selling at $18. For Platinum, it has remained a laggard in the sector. The rebound from $880 met resistance at $960. But prices are keeping the pattern of rising lows – for now (see Featured Chart).

But will the rise in stock markets carry precious metals stocks higher?

Well, I suspect the sector will be a near-term laggard. This is because the underlying metal are trading sideways. Look at the Precious Metals ETF (GDX). Prices have been establishing a pattern of falling highs since early September despite the firm market. A break below $26 is not to be ruled out.

What is more positive is the ongoing rally in the UK large miners. This is because of their greater exposure to cyclical commodities like iron ore. Rio Tinto (RIO), rebounded sharply this week as the market sentiment turned around (see below). BHP Billiton (BHP) and Glencore (GLEN) also saw a sizeable advance from their near-term lows. Some long exposure may be established on setbacks.

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