Gold prices have shined at their brightest in four months so
far this week. And gold miners' stocks have left the rest of the
in the dust, soaring to the top of the Leaderboard this year in a
dramatic reversal of fortune after coming in dead last in
Some market watchers believe worries over economic growth in
China and political turmoil in emerging markets sparked a flight
to safety in hard assets.
But investors best refrain from chasing them, because the
recent uptrend will be short-lived, say some gold analysts.
Gold ETF Outperformance
Gold bullion as tracked by theSPDR Gold Shares ETF (
) has gained 10% year to date, paring its 12-month loss to
Market Vectors Gold Miners (
), tracking a basket of large gold miners, has surged 23% year to
date on the stock market, while the
SPDR S&P 500
) has hardly budged. GDX's rally this year lightened its one-year
decline to 33%.
Market Vectors Junior Gold Miners ETF (
) surged 33% this year, shaving its 12-month collapse to 38%.
Gold closed down at $1,330 an ounce Wednesday after rising for
22 of the past 30 trading days. Gold prices climbed the past two
months as many mutual fund managers rebalanced their portfolios,
said Erica Rannestad, senior precious metals analyst at
London-based Thomson Reuters GFMS. Rebalancing entails selling
securities that rise above desired weightings and buying those
that fall below the mark. Demand seasonally rises in January
ahead of the Chinese Lunar New Year.
Rannestad is seeing physical gold demand ebb as prices rise.
But a break above $1,300 an ounce triggered fresh buying in
futures and options contracts, she said. She believes physical
gold demand will be capped at $1,380 and expects the gold price
to fall back to $1,000 within the year as the Federal Reserve
continues tapering its stimulus and inflation remains low.
will prefer equities over gold as the U.S. economy improves,
decreasing economic uncertainties that tend to trigger gold
buying, she added.
"Total open interest of gold futures has not broken out of the
downtrend from the 2011 top," Tom McClellan, editor of The
McClellan Market Report, said in an email. "Doing that would say
that it is a confirmed new uptrend for prices, and so far we do
not yet have that message."
Gold bugs believe gold prices have finally bottomed after
sliding the past 2-1/2 years. But the recent uptrend is merely an
oversold bounce or countertrend rally in a long-term downtrend,
says David Hunter, chief market strategist at KCCI Ltd., a
brokerage firm in Jersey City, N.J. He forecasts gold prices
falling below $1,000 an ounce this year to as low as $800 to $900
"At a true bottom, most of these so-called long-term bulls
will have thrown in the towel, as global deflation becomes the
dominant reality," Hunter said in an email. "I do think the
precious metals will put in an important bottom later this year,
but only after another big leg down."
"The precious metals are the leading edge of the deflation
trade and will likely bottom once it becomes obvious that the
global economy has entered a deflationary contraction," he