Gold ETFs Glisten As U.S. Dollar Sells Off


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Gold ETFs sparkled Thursday as the U.S. dollar sold off on weak manufacturing and housing data, spurring hopes for more quantitative easing.

Here's a performance overview of the key ETFs involved:

• PowerShares DB U.S. Dollar Index Bullish ( UUP ) dropped 0.44%.

•SPDR Gold Shares ( GLD ) rose 0.74% to $156.79.

•Market Vectors Gold Miners ETF ( GDX ) jumped 2.60%.

•Market Vectors Junior Gold Miners ETF ( GDXJ ) leapt 2.91%.

Strategists' outlooks differ. "Whatever rally we're seeing in gold should be sold short (to profit from falling prices)," said Damon Vickers, portfolio manager of Nine Points Capital Partners and chief equity strategist for Damon Vickers & Co. in Seattle.

In 2009 and 2010, he had as much as 40% of client assets invested in gold and started selling in August 2011 after Standard & Poor's downgraded U.S. debt. GLD shot up manically that month to an all-time high as traders loaded up on it as a safe haven. It's been trending lower since then and is now 15% below that high.

When the crowd goes one way, they're usually wrong because there's no one left on the sidelines to buy.

"The trend we've seen of the last three or four years is broken," Vickers said. "Surrender any hope of trying to make money in miners now and forever."

Yiorgo Aretos, founder of TheTMPGroup , sees a trading opportunity. Institutional traders, the so-called "smart money," are rotating out of stocks and into gold, he said.

"The markets are overbought and on the edge of a large drop," he said. Aretos projects the Dow will fall to 12,800, down 3.3% from Thursday's level, by year's end. He expects gold to soar to $1,800 an ounce, up 12% from Thursday's price, by year's end or even by November.

Gold found a "decent floor" at $1,550 to $1,600 an ounce, translating to $155 to $160 a share for GLD, says Janice Dorn, co-founder of . She suspects traders who were shorting gold while buying bonds are being forced to cover or close out of their positions. In addition, the market is slowly anticipating the economy is going from a deflationary to inflationary mode, she said.

David Morgan, founder of specializing in precious metals, believes gold miner stocks bottomed in May and could regain their former highs within one to two years. Bargain hunters are attracted to miners stocks because they're trading at their cheapest valuation relative to gold bullion in 30 years, he said.

Market Overview

In afternoon trade, the SPDR S&P 500 ( SPY ) climbed 0.62% to 141.82, just pennies away from its 52-week high in April.

SPDR Dow Jones Industrial Average (DIA) jumped 0.52%.

PowerShares QQQ (QQQ), a basket of the 100 largest nonfinancial stocks on the Nasdaq, surged 1.04%.

The market has been rising for six straight weeks but on quiet volume typical of summer.

"Positive economic news, continued QE (quantitative easing), August vacations, and the wait ahead of the upcoming Fed (Federal Reserve)/ECB (European Central Bank) announcement are the reasons for the muted, though slightly bullish action," Virtue of Selfish Investing LLC told clients in a daily note. "Fed heads are now hinting that the Fed would be willing to allow for a higher inflation target rate that is greater than 2% in order to get the economy moving again, all of which could be bullish for gold, commodities and stocks."

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 Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: GDX , GDXJ , GLD , SPY , UUP

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