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Metal ETFs: Top Performers Overshadow Fragile Participants

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( ETF Expert) -- Market watchers have been "bedazzled" by gold's new price tag at $1,500 per ounce. Similarly, ETF enthusiasts have been intrigued by Van Eck's ability to attract $500 million in assets for Market Vectors Rare Earth Metals (REMX); the exchange-traded fund has been in existence for less than six months.

Performance for many of the Metal ETFs and Metal ETNs have been nothing short of astonishing. In as little as three months, five prominent representatives have double-digit returns.

Perhaps surprisingly, there are sharp differences between the momentum for precious/rare/strategic metals and those metals that are more attributable to the well-being of global industry. In fact, it is this sort of run-up that leads many to question the sustainability of gold and silver's rise, let alone the jump in "rare earths" and "strategics."

With respect to the things in the world that are precious, rare or strategic, institutional and individual investors may be on the path to irrational greed. That's not to say I believe gold won't ultimately forge higher...on the contrary! I've been buying it on every significant dip for 2 1/2 years.

Nevertheless, one high level hedge fund could send silver for a monumental correction; one policy shift from China could hammer REMX as well. In other words, keep your stop-limit loss orders intact and check your premises. (Remember when oil went from $150 to $30, not to $300?)

It may a bit more interesting, though, to assess the reasons that "widely used" metals have underachieved. From my vantage point, investors have a conflicted outlook for the worldwide economy. Emergers may be growing, but can they contain inflation and still maintain their exporting capacity? Developed nations may have corporations with reasonably strong balance sheets, yet housing and tepid employment gains are a drag.

It follows that the metal with a Ph.D. in Economics isn't wildly impressed with the state of the global industrial cycle. If iPath Copper (JJC) doesn't break out of its doldrums relatively soon, it could be a very cruel summer.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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