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 (
) slipped 0.65% to 170.21 a share.Market Vectors Gold Miners ETF
) dropped 1.45% to 51.71.
PowerShares DB U.S.
Dollar Index Bullish (
), 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
Gold prices may have already priced in expectations of higher
inflation and monetary debasement from global economic stimulus
"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
. 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
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
, 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
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
He expects gold to hit new highs over the next 12 months. He's
also bullish on gold miners, which are trading at historically
"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
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
"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
Spot silver prices skidded 0.97% to $33.77 an ounce
Friday.IShares Silver Trust (
) 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 (
) 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