Gold and silver prices climbed to new five-month highs Tuesday, following through on the prior week's strong rebound off of the key 200-day moving averages.
In the futures market, the yellow metal lifted 0.32% to $1,699 an ounce. Silver rose 0.97% to $32.51 an ounce. Platinum and palladium rose 1.3% and 1.9%, respectively.
Battle Between Bulls And Bears
Curiously, the dollar strengthened along with the precious metals. Commodities traded in dollars usually move opposite.PowerShares DB U.S. Dollar Index Bullish ( UUP ), measuring the dollar against a basket of foreign currencies, ticked up 0.13%.
"Gold sometimes is a vote against fiat currencies, including the dollar and the euro, so it can have a mind of its own," said Anthony Welch, a portfolio manager at Sarasota Capital Strategies in Osprey, Fla., who has a position in GLD.
Gold and silver are overbought and their charts look bearish in the short and intermediate term, says Tom McClellan, founder of the McClellan Market Report.
The Commitment of Traders report shows commercial traders, the so-called "smart money," have been increasing their short positions, betting that precious metals prices will fall.
"The smart money is moving rapidly to take positions against this recent strength in recognition of the overbought condition," McClellan wrote in his daily newsletter.
On the other hand, gold enjoys strong seasonal demand during the fall because of Diwali holiday and wedding season in India and jewelers stocking up for year-end holidays in the West.
"(Gold) may be slightly overbought, but gold can remain overbought (or oversold) for relatively long periods of time," said Welch. "The risks of buying most anything now is unexpected news from Europe, potential for problems in the Middle East and unexpected economic reports -- the usual."
Precious metals are rallying on the expectations of more quantitative easing in the U.S. and Europe, which as it involves printing money would fuel inflation, where precious metals thrive.
Gold and precious metals funds took in $1.4 billion in inflow the last week of August after absorbing $1.5 billion the week before, according to EPFR Global.
"Gold prices recently hit a (five-month) high as investors positioned themselves for fresh rounds of quantitative easing on both sides of the Atlantic and Pacific," EPFR wrote in its weekly report. Gold attracted more assets than any other sector fund group.
But inflation hasn't been as strong as the gold bulls expected because of slow economic growth.
"It does not matter how much newly printed money is out there if no one is spending it," said Ethan Anderson, chief investment strategist at C-PAS UMA, a registered investment advisory in Grand Rapids, Mich.
"The biggest risk of owning gold and silver is that it has no intrinsic value; no earnings, no yield and little industrial use," Anderson noted. "There are few gold 'investors' because there is nothing to invest in. But there are plenty of gold speculators, and the thing about speculators is that they are a very fickle bunch with short time horizons.
"If you don't have earnings, yield, industrial use, or even the inflation hedge, all you have is momentum and your fellow speculators, which can be a dangerous pair," he added.