Gold And Silver ETFs Explode To Five-Month Highs

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Gold and silver ETFs exploded to five-month highs as the greenback weakened following Ben Bernanke's anxiously awaited remarks at the annual central bank meeting in Jackson Hole, Wyo.

Gold traders interpreted the Federal Reserve chairman's speech to mean there's a good chance for more quantitative easing, or economic stimulus via printing money, even though he didn't explicitly serve up the red meat they're drooling over.

In his speech, Bernanke stated: "Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

SPDR Gold Shares ( GLD ) climbed 1.77% to 163.36 as it bounced off of price-support at its 200-day moving average. A break above this key level is crucial in confirming a trend change.

Market Vectors Gold Miners ETF ( GDX ) surged 3.19%. But it's still trading below the 200-day line and failed to make a new high.

IShares Silver Trust ( SLV ) jumped 3.36% to 30.43. It also rallied off support at its 200-day average.

Global X Silver Miners ETF ( SIL ) flew 3.54% to 21.08. Like gold miners ETF, it's struggling to clear its 200-day average.

PowerShares DB U.S. Dollar Index Bullish ( UUP ), which measures the dollar against a basket of foreign currencies, fell 0.58%.

In the futures markets , gold rose 1.89% to $1,687 an ounce. Silver lifted 3.42% to $31.58 an ounce. Platinum and palladium also rose.

"Bernanke's focus on the country's persistent elevated unemployment rate while he spoke gave the gold bulls the rationale they needed to still believe that QE3 is imminent," said Alan Zafran, partner at Menlo Park, Calif.-based Luminous Capital . "In the bulls' eyes, it's not if, it's when."

Bernanke said the labor market was a "grave concern ... also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years."

"The unemployment rate remains more than 2 percentage points above what most FOMC participants see as its longer-run normal value, and other indicators -- such as the labor force participation rate and the number of people working part time for economic reasons -- confirm that labor force utilization remains at very low levels," Bernanke said. "Further, the rate of improvement in the labor market has been painfully slow."

Traders now are looking toward the next Fed meeting Sept. 12 and 13, when they hope it will announce another $600 billion bond-buying plan.

"Given the slow but steady pace of U.S. economic growth, however, it may be premature for such an announcement to take place," Zafran said. "It will likely not raise interest rates until mid-2015 (from what was previously declared as being the end of 2014), thereby providing a modestly stimulatory signal and allowing for them to take a more aggressive QE3 action at a later time should U.S. economic conditions worsen."

The Bearish Case For Gold

If no QE is announced in September, the gold traders will use that as an excuse to book profits, Zafran said. The last time the gold and silver broke above their 200-day averages, they rose for about four weeks and quickly crashed below it.

"It would be unwise of the Fed to engage in QE while U.S. monetary inflation is at its current level of almost 7%," said Paul van Eeden , president of Cranberry Capital, a private Canadian holding company. "If monetary inflation in the U.S. falls again, I think QE3 would become a high probability event. On the other hand, as long as monetary inflation remains at current levels, I see QE3 as a much lower probability event."

Gold remains vulnerable to selling on fears that European governments and debtors will have to sell their bullion to raise cash to pay off their debts, says David Goldman, founder of Macrostrategy.com . Europe can't engage in quantitative easing like the U.S. and he's doubtful the European Central Bank will go on a bond-buying spree.

"I don't believe that the ECB will buy southern European bonds in the face of German objections," Goldman said. "Moreover, the Fed's capacity to act with QE is limited with yields so low."

He projects gold will rise at most to $1,700 an ounce by year's end, a sliver above Friday's price.

"Gold loves the idea of low interest rates and QE," said Janice Dorn, co-founder of Jtrader.us . "Gold will start to weaken when there is a hint that interest rates are going higher."

Market Overview

In afternoon trade most major ETFS were higher.

SPDR S&P 500 (SPY): +0.56%

SPDR Dow Jones Industrial Average (DIA): +0.75%

PowerShares QQQ (QQQ), a basket of the 100 largest nonfinancial stocks on the Nasdaq, +0.66%.

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, +0.97%.

IShares MSCI Emerging Markets Index (EEM): +0.94%.

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: GDX , GLD , SIL , SLV , UUP

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