Where to Invest: Metals and Miners Are Weak; U.S. Stocks, Dollar Outperform

NEW YORK (TheStreet) -- Although both SPDR Gold Shares (GLD) and Market Vectors Gold Miners ETF (GDX) have developed strong bottoming formations over the past year, price breakouts to the upside have been put on hold as PowerShares DB US Dollar Index Bullish (UUP) and SPDR S&P 500 (SPY) continue to move higher.

Market Vectors Gold Miners ETF is most heavily weighted with companies Goldcorp  (GG), Barrick Gold  (ABX), Newmont Mining (NEM), Silver Wheaton  (SLW), and Franco-Nevada  (FNV).

GLD Chart
GLD data by YCharts

The U.S dollar and gold tend to trade in opposite directions as many money managers consider the precious metal a way to hedge against inflation. The negative correlation has held up recently as dollar strength due to improving U.S. fundamentals has weighed on buying support for the metal.

In July, strong U.S. labor market and manufacturing data proved to analysts that although pockets of weakness remain in the economy, as a whole, improvement is taking shape.

Meanwhile, gold is bid higher during times of fear as a way to hedge geopolitical risks. As tension increased in Ukraine and Gaza earlier in the year, gold kept a solid bid underneath it.

The odds, however, now favor that escalation of violence in both regions will diminish rather than become significantly greater. This belief has led investors to sell some of their gold and gold mining holdings, while pursuing stronger investments among U.S. equities.

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