By Kevin Grewal, editorial director at www.SmartStops.net
As second-quarter earnings reports continue to beat Wall Street expectations and news reports show signs of an economy on the mend, gold seems to be losing its luster.
Four factors are behind the brighter market outlook.
reported better-than-expected earnings Tuesday afternoon on an increase in revenue that suggests consumer spending on personal computers is more than what analysts had expected.
Additionally, it bumped up its third-quarter revenue forecasts to a range higher than what technology analysts had anticipated. What does this mean? As we all know, consumer spending is a driving force 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%.
The better-than-expected earnings reports are not only logging gains in U.S. markets, but they have trickled down to global markets as well.
In June, retail sales increased by 0.6%, marking a second consecutive increase for the sector. Most experts agree the surge in the sector was primarily driven by hikes in energy and gasoline prices. This uptick in sales 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 has seen a nice rebound of nearly 26% after witnessing a March low to close at $77.19 on July 14.
Consumer prices rose by 0.7% in June, marking its biggest one month gain in nearly a year. However, most experts say 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.
Granted industrial production continues to suffer, but companies are cutting back production at lower rates than expected. In June, production at U.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.
Industrials Select Sector SPDR
has gained nearly 40% from its March low to close at $21.56 on July 14.
As a result of these encouraging signs, the demand for gold and other bullion has started to taper off and slowly diminish. Holdings in the
SPDR Gold Trust
, 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. You can track these daily changes and get other updated data at www.SmartStops.net.