Gold Prices Up: Why Yellen Doesn't Deserve Full Credit

By
A A A

Gold prices appear to be stabilizing after melting for two weeks straight.

While many news outlets credited Janet Yellen for the boost, strategists expect the meltdown to resume, after a seasonal boost, owing to weak economic growth globally.

In New York futures trading, spot gold prices added 0.4% to $1,289 an ounce Thursday.

On the stock market SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, rallied 1.2% to 124.26. It rebounded from previous lows from August and October between 121 and 123 a share.

Market Vectors Gold Miners ETF ( GDX ) climbed 2.7% to 24.55.

Some market watchers said the bounce was driven by short-covering after Federal Reserve Chair nominee Yellen's dovish remarks to the U.S. Senate Banking Committee. Yellen said the central bank has to stick with its bond-buying spree to stoke economic growth and combat unemployment.

Although there's little doubt of her confirmation to replace Ben Bernanke, Yellen's remarks have been very general and pretty much a repeat of Bernanke's performances.

Seasonally, gold has entered its strongest months of the year, from November through February, covering Christmas in the U.S. and Europe, the Lunar New Year in Asia and Valentine's Day in the U.S.

"Seasonality and (negative) sentiment put the odds in favor of a near-term bounce," Simon Maierhofer, founder of iSPYETF.com, said in an email. He's buying gold futures at $1,281 an ounce with a stop loss at $1,268 an ounce. That translates to putting a stop loss at $121.70 a share for GLD.

Bill Strazzullo, chief market strategist at Bell Curve Trading, believes gold will bounce to as much as $1,314 an ounce, or 131 for GLD, before rolling over again to as low as $1,000 an ounce. The gold and silver bulls assumed that joint central bank stimulus programs around the world have failed to lift inflation as intended, Strazzullo says.

"The major economies around the world are still in a slow-growth, low-inflation mode despite years of very low interest rates and trillions of dollars of quantitative easing," he said in an email. "The forces of deleveraging and deflation, coming out of the last financial crisis, are still very powerful."

Demand For Bars, Coins

Investor demand globally for gold bars and coins grew 6% year over year to 304 tons in the third quarter, according to the World Gold Council's Gold Demand Trends report released Thursday. Most of the growth came from Asia and the Middle East. Gold jewelry demand rose 5% to 487 tons "as lower prices encourage shift to higher caratage."

Central banks, mainly in emerging markets, bought 93 tons in the third quarter, increasing their total reserves by 300 tons this year. It marked the 11th straight quarter of net buying.

Total third-quarter gold demand weighed in at 868.5 tons, down 12% year over year. In dollar terms, demand fell 37% year over year to about $37 billion mainly because of heavy selling in ETFs. Gold ETFs redeemed 119 tons in the third quarter, after redeeming 402 tons in the second quarter and 177 tons in the first quarter.

Global mine production rose 4% to 1,145 tons, while recycling shrank 11%.



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

Investor's Business Daily

Investor's Business Daily

More from Investor's Business Daily:

Related Videos

Stocks

Referenced

Most Active by Volume

91,252,153
  • $13.78 ▼ 4.31%
68,133,496
  • $12.93 ▲ 6.77%
57,268,074
  • $46.13 ▲ 2.47%
43,432,023
  • $105.22 ▲ 0.37%
40,880,685
  • $13.46 ▲ 8.90%
40,712,405
  • $98.62 ▲ 0.82%
39,776,976
  • $16.72 ▲ 0.72%
34,688,871
  • $11.16 ▲ 3.05%
As of 10/24/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com