Gold Losing Its Luster

By Kevin Grewal, Editorial Director at www.SmartStops.net

As second quarter earnings reports continue to beat Wall Street expectations and encouraging economic news floods the Associated Press, the economy seems to be on then mend and gold seems to be losing its luster.

Four factors are behind the brighter market outlook.

Earnings Reports- Chipmaker Intel (INTC) reported better than expected earnings on Tuesday afternoon on an increase in sales revenues suggesting that consumer are spending more on personal computers than what analysts had expected. Additionally, it bumped up its third-quarter revenue forecasts to a range higher than what technology analysts anticipated. So what does this mean? As we all know, consumer spending is one of the major driving forces behind an economic recovery and this “bottoming out” in the personal computer industry could potentially be the start of an upward trend in consumer spending. INTC has seen a nice rally from its March low of $12.08 to close at $16.83 on July 14, a jump of 39%.

Not only are better-than-expected earnings reports logging gains in U.S. markets, but have trickled down to global markets as well.

Retail Sales- In the month of June, retail sales increased by 0.6% marking a second consecutive increase for the sector. Most experts agree that this surge in the retail sector was primarily driven by the hikes in energy prices and gasoline, but other retail sectors saw healthy gains as well. Similar to the earnings report argument, this tend indicates that consumers are starting to let go of the tight grip they have on their wallets and spending a bit extra. The Retail HOLDRs (RTH) has seen a nice rebound of nearly 26% after witnessing a March low to close at $77.19 on July 14.

Consumer Prices- Consumer prices rose by 0.7% in June marking its biggest one month gain in nearly a year, however, most experts think that this was a bump in the road and inflation really isn’t much of a concern. To further support this notion, prices are actually down by 1.4% in June compared to a year ago. Inflation is becoming less of a worry because the recession is keeping a lid on wage pressures.

Industrial Production- Granted industrial production continues to suffer, but companies are cutting back production at lower rates than expected. In June, production at America’s factories, mines and utilities fell by 0.4%, smaller than the 0.6% decline that was anticipated and a far cry from the 1.2% contraction seen the month prior. The Industrials Select Sector SPDR (XLI) has gained nearly 40% from its March low to close at $21.56 on July 14.

These four factors have painted a much shinier outlook for the future of the global economy. As a result, the demand for gold and other bullion as started to taper off and slowly diminish. Holdings in the SPDR Gold Trust (GLD), the largest ETF backed by bullion, have fallen to 1,094.54 metric tons. Additionally, India’s gold purchases in the six months to June 30 have plunged to 63.8 metric tons, less than half of the 139 tons the emerging nation purchased a year earlier.

In a nutshell, as long as corporate America continues to outperform Wall Street, making equity attractive, consumer confidence continues to climb and inflationary worries are nipped in the bud, demand for gold and other bullion will continue to diminish.

When investing in the aforementioned equities, one must keep in mind the risks that are involved. To help moderate these risks implementing an exit strategy and identifying when the upward trend is coming to an end is vital. According to the latest data from SmartStops.net, an upward trend in these stocks and ETFs would be over at the following price levels: INTC at $15.91; RTH at $74.30; XLI at $20.70. These levels change daily and updated data is free at www.SmartStops.net.