BASE METALS INDEX HITS ANOTHER HIGH FOR THE YEAR -- SO DOES THE S&P 500 METALS & MINING SPDR -- STEEL LEADERS ARE AKSTEEL, CLIFFS NATURAL RESOURCES, AND US STEEL -- RISING DOLLAR, RISING RATES, AND A STRONG STOCK MARKET ARE PUSHING GOLD LOWER

INDUSTRIAL METALS CONTINUE TO CLIMB... The huge rally in industrial (base) metals continues. Chart 1 shows the PowerShares DB Base Metals Fund (DBB) climbing to the highest level since mid-2015. The DBB reflects rising aluminum, copper, and zinc prices. Iron ore and steel prices are also surging in Chinese trading. That's given a big lift to mining stocks. Yesterday's message shows ETFs tied to copper and steel in strong uptrends, as are most industrial metal miners. Today's message will show some of the individual leaders in steel. Meanwhile, the price of gold and gold miners continues to tumble. We'll explain why.

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Chart 1

S&P METALS AND MINING ETF HITS TWO-YEAR HIGH... Yesterday's message mentioned the S&P Metals and Mining SPDR (XME) hitting a new two-year high. Chart 1 shows the XME trading at the highest level since the end of 2014. It has also cleared a "neckline" drawn over its 2015-2016 highs. Its relative strength ratio (top of chart) has done the same. The XME includes mining stocks tied to steel, copper, aluminum, precious metals, and coal. It's biggest weighting (57%) is in steel. And it just so happens that its three biggest stocks are having a very strong day today.

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Chart 2

AKSTEEL, CLIFFS NATURAL RESOURCES, AND US STEEL ARE SURGING... Chart 3 shows AKSteel (AKS) surging to the highest level in two years. Chart 4 shows Cliffs Natural Resources (CLF) climbing nearly 7% today after clearing its August peak. Chart 5 shows USX-US Steel Group (X) at a two-year high. Those are three biggest holdings in the XME. We know that they're rising in heavy trading because all three are on the big board's most active list (as are Freeport McMoran and VALE). Plans for infrastructure spending, together with a shortage of steel in China, are driving the price of steel and other base metals sharply higher. The same bullish factors driving base metals higher, however, are hurting gold.

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Chart 3

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Chart 4

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Chart 5

GOLD TUMBLES TO NINE MONTH LOW... Chart 6 shows the Gold SPDR (GLD) dropping to the lowest level in nine-months. The GLD has lost -12% since the start of August. Gold miners have done even worse, having lost -33% over the same time span. Miners usually fall faster than bullion during a downtrend. Gold has three strikes against it. First, the US Dollar Index is trading at a 13-year high which is bad for gold. Gold started falling during August when the Dollar Index (solid green line) turned up (second green arrow). Secondly, the 10-Year Treasury yield (dashed line) bottomed in July (first green arrow) and rose sharply during October which pushed gold sharply lower. Rising rates are also bad for gold which pays no interest. The third strike against gold is a rising stock market. That's been especially true since the November 8 election. Rising stocks reduce the appeal for safe havens like gold. Interestingly, the very same factors described above resulting from signs of a stronger economy that are hurting gold are lifting economically-sensitive base metals and stocks tied to them.

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Chart 6

HAPPY THANKSGIVING... Things are looking a lot better for the U.S. economy and the stock market. That's especially true of economically-sensitive stocks like cyclicals, financials, and industrials which had another strong week, as did commodity sensitive stocks like energy and materials. Bond yields hit another high for the year today as did the U.S. dollar. Unfortunately, that's bad for bonds, bond proxies, and gold. Their weakness, however, is a sign that things are getting better. We appear to be nearing the end of the year in much better financial shape than we started. There's a lot to be thankful for this year. Have a Happy Thanksgiving.