Gold and silver prices regained some glitter Thursday on
bargain buying, short covering, falling stock prices and worries
over weak economic data, which support the likelihood the Federal
Reserve will continue its monetary stimulus.
SPDR S&P 500
) fell 0.62% in heavy volume to 150.40.
Spot gold prices rose 0.74% to $1,577 an ounce.
stock market today
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, added 0.78% to 152.62,
bouncing off of an eight-month low. It has tumbled 12% from its
52-week high and 18% from its record high of 185.85 in September
"Painful to be sure, but we have seen much sharper declines
before in this bull market, 23% in 2006 and 29% in 2008," Adrian
Day, founder of Annapolis, Md.-based Adrian Day Asset Management,
wrote in a client note Thursday. "Both times, gold snapped back
sharply, exceeding old highs within a year."
GLD broke below the key 200-day moving average the prior week,
signaling a strong downtrend. But it presents a contrarian buying
opportunity at its new lows, Day contends.
"For a contrarian, the fact that hedge funds have sharply
reduced their gold holdings is a positive sign. Perhaps at the
next budget impasse in Washington, they will exit stocks and move
back to gold," Day wrote.
"Another contrarian indicator is the rapid increase in the
short selling of gold. According to Standard Chartered, there are
168 tons of gold sold short, well over the five-year average of
100 tons. What has been sold short, has to be bought back
"Lastly, various indicators have reached new extremes,
including the oscillator indicator back to extremes last seen at
the beginning of 2009, suggesting a near-term reversal."
What's more, the economic uncertainties that drove
stock market investors
to use gold as a safe-haven asset and hedge against inflation
"Japan and Europe both reported weak GDP (gross domestic
product) numbers last week," Day wrote. "For the U.S.,
unemployment remains high, as do debt levels.
"And while stocks have experienced a strong run, the fact that
retail investors have started to pour money into equity funds,
for the first time since mid-2008, should give a contrarian pause
as to how long this rally may last."
The correction in gold prices will likely attract buying from
central banks, which are buying the yellow metal to diversify
The Federal Reserve has to continue quantitative easing, or
injecting more money into the economy, and support the
government's deficit spending to ensure that the economy keeps
growing, which is very bullish for gold, Peter Schiff, president
of Euro Pacific Precious Metals, said in a video blog posted on
his web site Thursday.
Although gold prices may fall further, investors who sit on
the sidelines or try to buy at the bottom could miss the rebound,
which he expects will be "explosive."
"I think there is enough negativity built into the market that
gold might have to top $2,000 an ounce before we bring these
timid investors back in," he said. "If we had some austerity on
the part of governments so that our economies could restructure,
particularly in the United States, if the Fed acted responsibly
instead of recklessly and took the punchbowl away instead of
spiking it, that might be bearish for gold."
The Fed is printing money to devalue to the dollar so that
Uncle Sam can pay off debts easier with devalued dollars, Schiff
"It doesn't matter that stock prices are rising in nominal
terms or that the economies appear to be expanding because we're
spending all this borrowed money," he added. "In order to sustain
this phony expansion, they have to continue to up the ante on
quantitative easing. They've got to print more and more money
just like a drug addict needs more and more drugs to stay
"We need more and more cheap money to keep this phony economy
going and that is the best of all environments for gold."
Some technical analysts believe gold is oversold and has
fallen near prior price support levels that attracted buyers
"I don't think it is time to catch the falling knife and bet
on a big gold rebound, but at the same time I am out of arguments
for why gold should continue lower," Tom McClellan, editor of The
McClellan Market Report, wrote in a special client note.
The dollar usually moves opposite gold because a stronger
dollar requires fewer of them to buy the same amount of gold. But
in an unusual move, the dollar appreciated alongside gold
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, jumped 0.41% to 22.22. It regained the key 200-day
moving average for the first time in six months and confirmed a
Market Vectors Gold Miners ETF (
) climbed 1.79% to 38.12. It's fallen 34% from its 52-week high,
far exceeding the 20% drop typically used as signal for bear
markets. It's also trading deep below both its 50- and 200-day
moving averages, indicating a strong downtrend.
Gold miners' stocks tend to fall harder than the yellow metal
but experience sharp rebounds, Day wrote. The XAU gold miners
index rallied 159% in 2005 and 100% off its 2008 lows with junior
gold miners flying even higher.
"One can't be sure how much lower or for how much longer gold
will fall, but we are closer to the bottom than the top, for both
gold and gold shares," Day wrote. "Valuation indicators for gold
and shares are near long-term lows. The clear breakdown of budget
talks may provide the trigger for selling the stock market and
moving back into gold."
Silver prices picked up 0.28% to 28.74.
IShares Silver Trust (
) added 0.50% to 27.73.
Silver Miners ETF (SIL) rose 1.47% to 18.62.
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