Gold Prices: 5 Things Investors Should Watch Now

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Gold prices melted Friday along with the stock market and the dollar as traders took profits amid a lack of major economic news or data releases.

Spot gold prices dipped 0.48% to $1,759.80 an ounce.

SPDR Gold Shares ( GLD ) slipped 0.65% to 170.21 a share.Market Vectors Gold Miners ETF ( GDX ) dropped 1.45% to 51.71.

PowerShares DB U.S. Dollar Index Bullish ( UUP ), tracking the greenback against a basket of major currencies, eased 0.14% to 21.83.

Kitco's latest survey of bullion dealers, investment banks, futures traders, money managers and technical-chart analysts show the pros are split on gold's path for next week. Nearly half, 48%, of 21 market participants surveyed are bullish, 43% are bearish and the rest are neutral.

The bear's contend gold's failure to break above $1,800 an ounce means lower prices are in store.

Here are five points investors should consider on the bull and bear side of the gold trade.

The Bearish Case

1. Trade May Be Too Crowded

It's been highly publicized that Wall Street's most successful hedge fund managers have piled into gold ETFs and legions of market wizards are shouting buy. The gold trade may be too crowded with few new buyers on the sidelines to drive up prices, said Mark Martiak, senior vice president at Premier Financial Advisors in New York with $300 million in assets under management.

Gold prices may have already priced in expectations of higher inflation and monetary debasement from global economic stimulus plans.

"It's hard to imagine that all of these stimulus-minded investors are still sitting on the sidelines, waiting for central bankers to make a big policy announcement before they pile into gold," Martiak said. "And there's the possibility that they are already fully invested in the metal."

John Paulson, best known for making billions from the housing bubble collapse, has $3.39 billion in GLD, according to GuruFocus.com . As his top holding, it takes up a whopping 28% of his $12 billion in assets. His stake accounts for nearly 5% of all money invested in GLD.

George Soros owns $137.3 million of GLD -- his fourth-largest holding. It accounted for 2% of his $3.81 billion portfolio as of June 30. He nearly tripled his position in the ETF in the second quarter.

Other hedge fund stars with big stakes in GLD include Steve Mandel of Lone Pine Capital, who manages $17 billion; Jean-Marie Eveillard of First Eagle Investment Management, $25.7 billion AUM; and Leon Cooperman of Omega Advisors, $4.4 billion AUM.

2. The Dollar Could Rebound

Gold, which trades in dollars, will fall if the greenback strengthens. The two tend to trade opposite each other. PowerShares DB U.S. Dollar Index Bullish has been trending lower since 2008. It lost 5.3% in the past three months and it's hovering near a 10-month low.

Andrew Norman, an analyst at BullAndBearMash.com , believes the dollar has bottomed against the euro, Swiss franc, pound and yen and is ready to rebound.

"Europe is ready to collapse financially, but by some magical stroke of luck, Europe's currencies are worth more than the U.S. buck," Norman said. "I think it's fair to say the U.S. dollar is at a bottom and ready to rise. Interestingly enough, the euro, franc, pound and yen are all on bear runs. The yen topped recently."

3. Gold Isn't A Safe Haven

Gold prices have been falling as investors rush for safety in the real safe haven and the world's reserve currency -- the U.S. dollar, says Tim Dyer, vice president of Sage Capital Advisors in La Jolla, Calif.

"Gold has been a safe haven in times of massive inflation, which is out there, but also backstopped by the Federal Reserve and Ben Bernanke for a few more years," Dyer said. "While there are some pundits that swear gold will be the new reserve currency, that is a long way from happening."

The Bullish Case

4. Rock-Bottom Interest Rates

Dismally low interest rates force investors out of safe-haven Treasuries and money markets into risk assets because they can't earn any dividend income on bonds.

"Real interest rates at 4% in 90-day Treasuries would represent a significant head wind for gold," John Hathaway, portfolio manager of Tocqueville Gold Fund at Tocqueville Asset Management, wrote in his third-quarter client letter. "However, it is difficult to imagine a transition to real rates of 4% without inflicting significant damage to the financial markets or the economy."

He expects gold to hit new highs over the next 12 months. He's also bullish on gold miners, which are trading at historically low valuations.

"Profit margins are at record highs and returns on capital are approaching respectable levels," Hathaway wrote. "Equity capital issuance has dropped sharply in the last few years, a reflection of the industry's much improved profitability."

5. Chart Patterns Look Bullish

GLD's chart has formed a bullish four-weeks-tight pattern with a 174.17 buy point. The pattern appears when a stock closes the week within 1.5% of the prior week's close for four straight weeks.

GDX's chart appears to have formed a bullish long cup-with-handle base with a 55.35 buy point.

"Gold and silver prices are tracing out bullish pennant formations, in our opinion, and appear to us to be setting up for big moves," Mark Arbeter, chief technical strategist at S&P Capital IQ, wrote in his report this week. "Major chart resistance for gold remains at $1,800 an ounce. With the chart patterns bullish, and the greenback starting to break lower, we think the precious metals will see a major breakout in the very near term.

"Based on the size of the current cup-and-handle patterns, we believe there could be a measured move for gold up to $2,075 an ounce."

Silver Prices

Spot silver prices skidded 0.97% to $33.77 an ounce Friday.IShares Silver Trust ( SLV ) fell 1.19% to 32.51. It's formed a bullish four-weeks-tight pattern with a 34.18 buy point.

Global XSilver Miners ETF ( SIL ) gave back 1.16% to 24.29. It appears to be forming a cup-with-handle base with a 25.69 buy point.

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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