"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Thursday, October 25, 2012

Dow Jones/UBS Commodities Index Change to Benefit the Precious Metals

Every year, the various commodity indices, that are used by hedge funds and index funds to benchmark against, have a reweighting of the various commodity inputs that are used to comprise each particular index. During this reweighting process, the percentage of some commodities are increased while the percentage of others are decreased. As a result, those funds benchmarking against the index, are forced to recalibrate their particular portfolios, selling some commodity positions while buying some new commodity positions in order to come into alignment with the new weightings.

Dow Jones/UBS recently announced that the precious metal component of their index will be increased by 2% from this year's levels for 2013. This will benefit gold and silver to the extent of an estimated (by Credit Suisse analysts) to the tune of some $1.6 Billion in new money flows. The money will be evenly split between gold and silver.

There might be some buying in the metals this AM on this news given the fact that the Dollar is generally steady this AM, which would normally see some pressure on the metals. Bargain hunting occurred last evening in Asia down near $1700 and is sitll coming in against that support level on the charts.

Gold bulls need to get the price back over $1720 however and KEEP it there to stem the recent declining pattern and stabilize the market.

Strength in the mining shares as evidenced by the HUI is aiding the metals. That bullish flag formation on the weekly chart is still in force but was chipped away at by yesterday's strong down day. Mining share bulls will need to take the index up through 510 for starters to give some further hope of validating the pattern. A close in the index below the 480 level makes the pattern null and void.


  1. Dan,

    Thanks. I don't know where else I would have heard about this. It definitely provides a small boost directly and the increased recognition of gold/silver as sensible assets to have in broad portfolios is good news as well.

    Appreciate your continued efforts to keep us informed!

  2. Great intraday outperformance of miners versus both the indexes and the metals themselves.

    This is the first time in a LONG time that I've seen any miners beat earnings estimates so handily. AEM beat by .37, GG by .07, with both of those companies previously having operational issues, etc. Very positive action. If we can close the week in the $HUI unchanged, that would be fantastic.

  3. Yes, looks like Bernanke is at it again. Slamming the commodities and boosting bond prices during this equity selloff.

    Amazingly, gold is holding up along with the grains, while hydrocarbons are getting blowtorched.

    In any event, looks like the "Master and Commander" is setting up another bear trap, and the next rally in the S & P 500 is likely to be led by the XAU.

    Lots of money has rotated out of the Investors Business Daily Top 50, many of those high fliers have been crushed.

    Money is now going into the gold mining stocks, and other oversold sectors like coal and oil service.

    Never a dull moment, especially with interest rates still near rock bottom and every central bank in the world is loosening monetary policy.


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