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Strong Metals Prices are Driven by Demand for Autos

David Becker
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Strong Metals Prices are Driven by Demand for Autos

Last week’s better than expected data helped consumer discretionary stocks continue to be one of the strongest sectors. Of this sector, Autos were the driving force behind this move. The Dow Jones US Automobile Index ($DJUSAU) climbed 1.5% and nearing a new yearly high. Its relative strength ratio has been rising since May. The line in top shows platinum recently hitting a new 10-month high. Stronger auto sales increase demand for platinum and palladium as both are used to manufacture catalytic converters.

Metal prices including both industrial and precious have seen the strongest commodity gains recently and with strong car sales are likely to continue to see further gains despite a pullback today in the broader markets. Their stronger action is being reflected in stronger metal shares.

The weekly bars show that Freeport McMoran Copper & Gold (NYSE:FCX) having broken through its late 2013 high to register an upside breakout. Its relative strength line has started to rise along with price action reflecting accelerating positive momentum. FCX has been helped by a rising copper price. Aluminum prices have been rising as well which helped make Alcoa the day’s strongest S&P 500 stock. The weekly bars show Alcoa (NYSE:AA) climbing to the highest level since 2011. Its relative strength ratio has been climbing since mid-2013. Precious metal stocks are also doing better.

Gold’s twelve-dollar gain helped make precious metal shares one of the day’s strongest groups on Wednesday. The Market Vectors Gold Miners ETF (NYSEARCA:GDX) climbed 2.6% and putting it at the highest level since March. The breakout is robust and the GDX is poised to test the March highs near 28. The RSI is moving higher with price action reflecting accelerating positive momentum while printing near 71, which is above the overbought trigger 70 and could foreshadow a correction.

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