While many focused in on how the Fed meeting hit equities and bonds, the impact on the commodity world was also huge. That is because talk of tapering helped to boost the dollar, strengthen demand for safer securities, and decrease interest in natural resources across the board.
This trend was further confirmed by weakness in a number of key emerging markets around the globe after the FOMC meeting. These nations are often huge consumers of commodities, and the prospect of lower demand from these countries also hurt prices on the day too (read 4 Ways to Short Gold with ETFs).
Where was the pain?
Although the selling was pretty broad based, the worst of the trading was arguably in the precious metal world. This corner of the market experienced huge losses on the day as traders succumbed to the broad selling and gave up on the asset class.
Consider some of the following performances in the space, as represented by precious metal ETFs:
As you might imagine given these performances, the moves in the leverage and inverse markets have been truly astounding in the time period as well (see How to Short Silver with ETFs). Some of the biggest losers in this space include:
Clearly, the selling pressure has been extremely intense and not limited to gold and silver by any means. It also suggests that the recent trend away from precious metals may be intensifying in the short term, and that traders need to be extra careful in this type of market.
After all, prices could definitely correct here, especially given broad demand for precious metals by some die-hard investors, so a move higher can’t be ruled out in the near term. Still, the recent trend is extremely troubling and the dollar strength has to be very concerning here (read Currency ETFs Hit Hard by Taper Talk).
Given this, investors may want to consider avoiding the precious metal market in the near term, at least until it cools down a little. Events are a bit too frothy right now, and it is pretty clear that additional selling could be in the cards for the space if more taper talk hits the market, or if the Fed appears ready to act sooner rather than later on the QE front.
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Author is long PPLT.