Gold Jumps To 4-Week Highs: New Uptrend Starting?

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Gold and silver prices staged their largest one-day rally in a year. They surged to a four-week high Monday as the dollar -- which tends to trade in the opposite direction from precious metals -- weakened against major currencies.

Spot gold prices climbed 2.88% to $1,335 an ounce.

SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, jumped 2.98% to 128.84 in the stock market .

Market Vectors Gold Miners ETF ( GDX ) flew 6.11% to 27.44.

As usual the gold bugs and bears were at odds about what's driving prices. Some strategists said investors expect the Federal Reserve to keep juicing the economy in light of disappointing U.S. housing data and easy money policies globally.

Others believe it's another short-covering, countertrend move in a long downtrend that started nearly two years ago.

"Anytime a market moves, people always look for news to explain it, but I am not sure there is any specific news or development," said Adrian Day, president of Adrian Day Asset Management in Annapolis, Md., which has $125 million in assets under management. "I sense people (are) realizing the sell-off was overdone, and that nothing fundamental is changing with the Fed's easy money policy anytime soon. Thus those who sold are buying back, those waiting for lower prices are buying, and those who initiated shorts are covering."

Dollar Doldrums

PowerShares DB US Dollar Index Bullish ( UUP ), measuring the greenback against a basket of major foreign currencies, fell 0.45% to 22.26. Existing-home sales dipped 1.2% month-to-month in June, undercutting expectations of a 1.9% increase, leaving investors to doubt whether the Fed could start tapering its bond-buying program in September.

"The market's feeling that the Fed's QE (quantitative easing) may indeed be extended, regardless of if Fed officials are saying or hinting otherwise," said Ron DeLegge, editor of ETFGuide.com , said in an email. "The gold market loves QE."

DeLegge and other trading strategists believe gold is merely making a counter-trend rally on bargain hunting and short covering. In those strategies, traders betting on falling prices have to buy back their positions to close their trades. That creates demand, pushing prices up.

"Speculative short gold positions reached an all-time high last week and recent CFTC (Commodity Futures Trading Commission) data indicates that speculators are unusually long in the U.S. dollar against other major currencies," said Tom Winmill, portfolio manager of Midas , a mutual fund with nearly $24 million in assets.

He added, "So the run-up might be simply gold and nondollar short covering by speculators. Yet the short covering could change sentiment and result in a more sustained rise for gold prices during this quarter."

Gold will likely rise to $1,370 to $1,430 an ounce and then resume down-trending, according to Bill Strazzullo, chief market strategist at Bell Curve Trading, based in New Jersey.

"After April's huge decline, gold corrected 61.8% and then declined once again," Przemyslaw Radomski, founder of SunshineProfits.com, said"

Silver prices popped 4.86% to $20.53 an ounce.IShares Silver Trust ( SLV ) advanced 4.77% to 19.78.



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 , SLV , UUP

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