Are Metals Quietly Breaking Out?

Illustration of silver reserves piled high in a stack

Most attention this week is focused on hopes of pro-business tax reform in Washington …meanwhile investors seem to be shifting money into an industry outside the current spotlight: Metals.

The SPDR S&P Metals & Mining Fund (XME) has gained almost 6 percent since December began. If it keeps moving at that pace, it will have its strongest monthly gain since Donald Trump won U.S. presidency in November 2016.

Traders see a few catalysts for the move:

  • Chinese demand for steel and copper are rising, especially as Beijing reduces its domestic output.
  • Some forecasters see risk of miners striking in Chile, the world’s top copper exporter.
  • Economic data has been strong both at home and abroad: Germany’s central bank and a top business group raised outlooks for the country last week. A survey today showed U.S. sentiment at its highest level in a decade, while consumer data, industrial surveys and employment reports remain better than expected.

Metals have gone nowhere for most of 2017, despite the good news. But XME has only recently broken through its 50-day moving average. It’s also pushing a long-term resistance zone around $34 from mid-2013. Given that this fund is still down more than 60 percent versus its 2008 high and the strong fundamental backdrop, will value hunters look for a breakout in the New Year?

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.