Mr. Market Squishes Gold Bugs as Stocks Decline

Stock markets have fallen modestly today after reaching record highs over the past few days. The Dow Jones Industrial Index (DJINDICES: ^DJI  ) is down 0.13% in late trading, and the S&P 500 (SNPINDEX: ^GSPC  ) has dropped 0.38%. But the real fireworks were in the commodities market, where gold fell 4.2% and oil dropped 2.5% by 3:15 p.m. EDT.

The Fed is discussing the end of quantitative easing, and the stock market continues to rise, so the "safe haven" that gold bugs find comforting is getting a little less attractive by the day. A commodity like gold can quickly plummet when traders decide to sell: There's little fundamental use for gold, so it trades based more on sentiment and fear than on fundamental supply and demand, unlike other commodities.

Oil fell after the Thomson Reuters/University of Michigan consumer sentiment reading for April dropped to 72.3 in April from 78.6 in March. This is just a preliminary reading, but it's the lowest since last July, and it shows that the economy could be weakening.

Alcoa (NYSE: AA  ) has followed the drop in commodities, falling 1.5% today. Alcoa beat earnings estimates by a small margin earlier this week, but investors are taking a cautious approach to the stock now that we're past earnings. The company is fighting fear of an economic slowdown, as well as fear of a bear market for commodities, and those two factors will hang over the stock until economic conditions improve.

On the flip side, Home Depot (NYSE: HD  ) has rallied 2.3% after the company was upgraded by an analyst at Jeffries. This upgrade isn't a long-term driver of the stock, but it can bring in short-term buyers and help reinforce your investing thesis. The analyst thinks home investments will look attractive to home owners who are weary of low-yield, fixed-income investments and new record highs on the stock market. It was also announced that HD Supply has filed for an IPO. This former subsidiary of Home Depot is majority-owned by private-equity investors, but the 12% ownership stake Home Depot still holds could give the company an infusion of cash.

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  • Report this Comment On April 12, 2013, at 4:15 PM, jargonific wrote:

    So the Fed appears to have decided to continue quantitative easing. Isn't that right?

    Also there is global instability in markets especially in Europe. Plus the Central Banks appear to be at the heart of this, more then the Fed.

    Isn't that right? If CBs sell gold to gather capital, that would tank it. But wouldn't they be wiser to manipulate price upward and sell/buy or buy/sell to make more money? Just a few thoughts.

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