The sell-off in commodities is getting serious in early trading on Monday. Word of Chinese GDP coming in at 7.7% against 8% expectations last night is being blamed, but today isn’t the start of the selling. Brent crude is down 3%, but was already 15% lower that where it traded in February. Copper is near 18-month lows, aluminum is near 3-year lows and silver is down double-digits today alone.
Yahoo! Finance senior columnist Michael Santoli says a confluence of negatives are weighing on commodities as a whole. The accelerating flight out of funds playing emerging market growth can’t be ignored as a significant anchor on prices.
“The commodity funds that were riding this trend, big money raisers in the past several years to play the supposed super cycle, clearly are in liquidation on some level.” says Santoli. “I think it was underestimated exactly how much strong growth and therefore a lot of wealth creation in China and India was directly fueling gold and silver purchases.”
With would-be industrial buyers of the goods pulling back their orders, at the same time aggressive redemption of trading funds is happening, a double-whammy for prices. Taking but one example, the SPDR Gold Trust (ETF)(NYSEARCA:GLD) saw more than 2% of its assets under management walk out the door in just the week ending April 11th. Once the largest ETF in the world with nearly $80 billion AUM, the GLD has shrunk by more than 25% since 2011.
See the full “Breakout” segment below:
Related: ETFS Gold Trust (NYSEARCA:SGOL), Direxion Shares Exchange Traded Fund Trust(NYSEARCA:DUST)