Gold continued rebounding from oversold levels Monday thanks
to strong physical demand, bargain hunting and short
Spot gold prices jumped 1.41% to $1,427 an ounce.SPDR Gold
) popped 1.78% to 137.88.
"Based on the size of the recent trading range between $1,800
an ounce and $1,525 an ounce, we could see a measured move down
to the $1,250 ounce region," Mark Arbeter, chief technical
strategist at S&P Capital IQ, wrote in his weekly technical
report. "That would represent about a 38.2% retracement of the
entire bull market that started in 2011. Once 'the' low is in, we
expect a long period of sideways price action with a major
ceiling at $1,525 an ounce."
U.S. Commodity Futures Trading Commission data show that
speculators, or the so-called "dumb money," are holding the
fewest number of long positions in gold since late 2008, when
gold formed a major price low. They're usually wrong and are
considered a contrarian indicator.
"That makes a strong statement that the small traders have
given up hope on gold, and are buying into the idea that gold is
going to collapse even further from here," Tom McClellan, founder
of "The McClellan Market Report," wrote in his newsletter. "Given
their track record, it seems that the opposite conclusion is much
Some market watchers attribute the sell-off the prior two
weeks, in which gold lost 15%, to fears the Federal Reserve will
end quantitative easing earlier than expected. But waning
expectations of inflation as tracked by the Treasury
Inflation-Protected Securities, or TIPS, break-even rate suggests
that scenario is unlikely, according to Jeremy Siegel, senior
investment strategy adviser to WisdomTree Investment.
The TIPS break-even rate fell to 2.32% Monday, indicating the
Fed will continue quantitative easing "in full measure," Siegel
wrote in a commentary Monday. The TIPS inflation break-even rate
is the difference between the TIPS and Treasury yields of the
same duration. A high 10-year break-even rate, typically above
2.5%, means inflation fear is running high, while a low breakeven
rate, usually under 2%, suggests fears of deflation.
The U.S. is struggling to stoke inflation and will have to
maintain its easy monetary policy through the end of 2014 at
least, Dan Denbow, assistant vice president of equity portfolios
at USAA Investments, told clients Monday in a note. The firm
remains overweighted in gold and gold mining stocks in its asset
"Central banks continue to pursue an easy monetary policy,
ultimately increasing the risk of inflation and currency
devaluation in advanced countries," Denbow wrote. "Confidence in
fiat currencies, or paper currencies backed by governments, has
been eroding as the world's central banks continue to follow
Market Vectors Gold Miners ETF (
) lifted 1.36% to 28.98, outpacing a 0.46% gain in
SPDR S&P 500
). After plunging 23% month to date, GDX hovers near its lowest
price in more than four years.
Gold mining stocks have sold off far below what their
fundamentals command, Denbow said.
Mining costs run about $800 an ounce, way below gold's current
price, says John Hathaway, manager of Tocqueville Gold Fund .
Miners have become more conservatively managed and have room to
hike dividends, he added.