Gold and silver futures prices were hammered hard Thursday and
Friday, melting mining stocks to six-month lows. The precious
metals lost luster as a safe-haven asset following a rash of
positive economic reports, and traders sold at technical
While the gold bulls scream at investors to buy the dip, some
experts see a looming global recession sending gold and silver
crashing as much as 50% this year.
Spot gold prices dipped 1.03% Thursday and another 0.58%
Friday to $1,657.60 an ounce.
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, fell 1.1% Thursday and
0.51% intraday Friday to 160.45.
PowerShares DB US Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, ended flat Thursday but ticked down 0.16% Friday to
Market Vectors Gold Miners ETF (
) plunged 2.99% Thursday and 2.89% Friday to 41.98, a six-month
Market participants attributed the sell-off to a successful
auction of European sovereign debt, weekly U.S. unemployment
claims hitting a five-year low, Congress suspending the national
debt limit and robust home sales.
"Therefore, we have less risk aversion and more risk
appetite," Paul van Eeden, president of Cranberry Capital, a
private Canadian holding company, said in an email. "I guess the
market then speculates that a stronger economy could allow for
rising interest rates and a cessation of QE (quantitative
easing), which are both negative for gold.
"But when it comes to explaining the day-to-day gyrations of
any quoted financial instrument, who really knows what the market
thinks, as there really is no 'market,' just millions of people
doing what seems to be like a good idea at the time."
Leo Larkin, an S&P Capital IQ equity analyst, believes
gold bullion will rise 15% this year to about $1,930 an ounce and
that should boost gold miners' stocks. He contends gold remains
attractive to investors because low short-term interest rates
reduce the opportunity cost of holding it, especially given the
Federal Reserve's commitment to keeping rates near zero until at
Global mine supply through the first three quarters of last
year fell 1.9%, and production will likely remain low for the
next several years as old mines get depleted and are not replaced
enough to lift output.
Larkin rates the biggest gold minersBarrick Gold (
) andRandgold Resources (
) with buy ratings andNewmont Mining (NEM) as a hold. He believes
all three are in a position to grow profits by at least 35% this
year as they increase production while benefiting from rising
Gold Chart Analysis
Gold has been trading in a sideways range between $1,645 and
$1,693 an ounce for the past four weeks. Whenever it reaches the
top of the range, traders sell to take profits. And every time
gold prices hit the bottom of the range, buyers snatch it up.
How to invest
in this market?
The direction is unclear until gold breaks out of its recent
range, says Janice Dorn, an independent gold trader in Phoenix.
She believes it will take a move above $1,700 an ounce to attract
Gold appears to have hit price resistance at its
50-day moving average
and is hovering right above its
200-day moving average
. Its chart looks very bearish as it has formed a series of lower
highs and lower lows since peaking in October.
GLD's chart also features very weak
IBD Relative Strength
of 25 and E. This means 75% of the market has risen higher and
faster than GLD over the past 12 months and institutional
investors are selling far more shares than buying.
"If physical demand again comes into the market strong as it
did in recent pullbacks, that could put the brakes on any
additional downward pressure," noted Christopher Blasi, president
of Neptune Global Holdings, a Wilmington, Del.-based precious
Silver prices dropped 1.73% Thursday and 1.61% Friday to
$31.12 an ounce.
IShares Silver Trust (SLV) skidded 1.73% Thursday and 1.63%
Friday to 30.15. It also appears to have hit resistance at its
10-week average. And it also has formed a series of lower highs
and lower lows, typical of a long-term downtrend. Its IBD
Relative Strength Rating of 34 and Acc-Dis Rating of D confirm
Silver Miners ETF (SIL) crashed 2.72% Thursday and 1.85% Friday
to 20.72, its lowest price since late August.
"There are a lot of very bullish arguments as to why the
miners are seriously undervalued right now, but until gold and
silver trade much higher, and the broader investment community
believes such high prices can stick around a bit, an
outperformance in the shares is not going to happen," Blasi said
in an email.
The Bearish Case For Gold And Silver
Gold will eventually crash to $1,000 an ounce and silver to
the low teens, predicts David Hunter, a chief market strategist
at KCCI, a small brokerage in Jersey City, N.J. He believes a
global recession looms large and that it will spark the first
instance of global deflation in 70 years.
"Europe and Japan are already in recession and likely to get
worse. I expect the U.S. and China to join them," Hunter wrote in
an email. "I am not buying the current Street consensus that the
U.S. and China are going to strengthen as we move through the
"Monetary policy is far tighter than investors realize and we
are getting austerity on top of that. This is going to lead to a
downturn that I expect to be swift and steep given the leverage
that overhangs this economy.
"As late as September of 2008, a broad consensus of economists
were still forecasting that the U.S. was going to have a soft
landing and avoid recession despite the fact a credit bust was
only days away.
"I think we are seeing a similar situation today with
economists and strategists and investors in general, getting more
optimistic on the eve of what I think is going to turn out to be
a historic global downturn."
Follow Trang Ho on Twitter @TrangHo