Gold and silver prices ended the first week of the year nearly
flat after four sessions of intense volatility rocked by the
fiscal cliff deal, the dollar rallying from its lows and worries
that the Federal Reserve will end quantitative easing sooner than
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, closed the week down
0.06% at 160.44, slightly below its 200-day moving average.
Market Vectors Gold Miners ETF (
) eked out a 0.89% gain, ending the week at 45.33. It appears to
have hit resistance at the key 200-day line and is in a confirmed
IShares Silver Trust (
) added 0.47% for the week to close at 29.24, below its 200-day
line, which confirms a downtrend.
Silver Miners ETF (
) added 2.31% to 22.51. It closed above its 200-day line but
below the 50-day line, indicating a weak uptrend.
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, surged 0.96% to a one-month high of 21.99. But it's
still trading below its 200-day line, which is bearish. The most
volatile trading tends to occur below this line, so sharp moves
have to be questioned.
Here are five reasons the precious metals bugs believe traders
should buy gold and silver at current levels.
1. They're oversold and likely to stage a short-term rebound
on bargain hunting.
"Gold and silver are the most oversold near term of any major
market we track," Harry Dent, founder of HS Dent in Tampa, Fla.,
wrote in an email. "Hence, we think there is not a lot of
downside and more upside than in stocks in the months ahead."
Dent projects gold futures will rise to $2,030 to $2,080 an ounce
if it can break above $1,800 an ounce.
2. They may find support at December lows.
If GLD holds support at its Dec. 20 low of 158.39, Anthony
Welch recommends buying with a stop below 157. He is a principal
at Sarasota Capital Strategies in Osprey, Fla., and portfolio
manager of Currency Strategies Fund . Although the dollar is
rallying against the euro and pound, it's falling against the
Australian and Canadian dollars, which he expects will
"Gold wasn't meant to be day traded, rather it has served as a
store of value for thousands of years and generally should be
considered as such," Anthony Welch wrote.
3. The sell-off may have been a knee-jerk reaction to the
Federal Reserve's minutes showing that some members believe it
should end the quantitative easing program before year's end.
The selling Thursday and Friday resulted from traders booking
profits as the news emerged, says Yiorgo Aretos, founder of TMP
Group, a stock market research firm. When a few traders sell on
the news, the crowd follows suit, selling on fear.
Gold and silver prices are suffering from short-term euphoria
that the global economy is improving says G. Miguel
Perez-Santalla, a vice president of business development at
BullionVault.com, an online precious metals dealer and storage
4. If U.S. economic growth slows, the Federal Reserve will
have to maintain its quantitative easing plan.
"U.S. growth is going to slow in the first quarter and that
will fuel more stimulus globally and the Fed may back off of
(Friday's) statement that they may curb QE3 later this year,"
Dent wrote. "If China does continue to see growth accelerate and
add more stimulus, as we expect, gold and silver will like that
as well. Fifty-two percent of gold purchases come from China and
5. Uncle Sam is still drowning in debt and spends more than he
"Washington is obviously going to continue running deficits
and (Federal Reserve Chairman Ben) Bernanke is going to
accommodate, which is bullish for gold," Adrian Day, president of
Adrian Day Asset Management, said in an email.
The Bear Case
Gold is selling off because deflation poses a greater risk to
the global economy than inflation, said Bill Strazzullo, chief
market strategist at Bell Curve Trading in New Jersey.
"The main drivers of global economic growth: U.S., Europe, and
China all have significant questions/challenges regarding their
economic performance in 2013," Strazzullo, said in an email.
He projects gold will drop below $1,600 an ounce and silver
$27-$28 an ounce in the short term. Gold will slip below $1,400
an ounce and silver $20 an ounce longer term, he said.
Precious metals prices have been falling as the dollar
strengthens against the yen, pound and euro. The yen is
depreciating under the weight of the country's debt, which hovers
over 220% of GDP, and the Bank of Japan debasing the currency to
"We see the market shifting from the speculative currencies
(euro, yen and pound) to something that is relatively more stable
-- the U.S. dollar," Andrew Norman, an analyst at
BullandBearMash.com, said in an email. "The U.S. dollar trend
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