Trader Talk

Commodities, Commodity Stocks Decline

Jesus Ayala | E+ | Getty Images

What's up with commodities and commodity stocks?

Not just metal names, but even energy is getting hit. And volumes in commodities and commodity stocks are much heavier than the overall market. Countries that are commodity heavy (Russia, New Zealand, Australia, and Brazil) are also seeing declines in their respective ETFs greater than the overall market.

There is, of course, the usual rumors that some fund may be in trouble. This is the excuse that is dragged out every time a sector moves much bigger than the overall market. It may be true, but there are other, more likely, explanations:

1) Caterpillar (CAT) released its trailing three-month dealer sales today. Asian sales declined 12 percent, North American sales declined 11 percent. It was not pretty, and it implies that global growth is not accelerating.

2) the Chinese government again seems desperate to slow down real estate appreciation. Overnight China's cabinet urged local authorities to put price control targets on new homes.

The Chinese tightening...whether it's real estate, or bank loans...always makes global markets nervous.

3) Have the Chinese and other Asians abandoned gold to buy stocks and real estate? There is particular focus on gold and gold stocks today. Gold has been in a decline for several months, from the $1,900 high back in October. but it has been in a particular decline since December.

This is the same period that corresponds with a huge rally in the mainland Chinese stock market; the Shanghai Index has appreciated 21 percent since then, while gold has declined 7.5 percent.

And it's not just China: other Asian markets are in rally mode, including , up 16.8 percent since December 1; Indonesia, up 8 percent; Philippines, up 19 percent; and Singapore, up 7.7 percent.

The Chinese New Year celebrations have just ended, and I will bet you gold sales have been disappointing.

This is not a minor matter: the Chinese and the Indians are the two biggest buyers of gold in the world. And there are already reports that Indian buying is down.

Then there are technical factors: with gold sitting right on its "death cross" (crossing the 50-day moving average with the 200-day), volume in the biggest gold ETF, the SPDR Gold Trust (GLD), is 20 million shares at 2:00 p.m. ET, well above the roughly 10 million shares it trades on a typical day.