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Gold Regains a Little Luster

27 January 2014 in Trading Ideas

After a trying 2013 for gold investors, the past month has offered a glimmer of hope to some.

The metal’s price has gained about 4% so far this year, and although the analysts vary widely on how the metal will perform in 2014, investors seem willing to consider a nibble or two.

As the Wall Street Journal recently reported, large hedge funds and other money managers increased their net position in gold futures and options by 18% to more than 40,000 contracts – its highest level in seven weeks.1

The confidence of gold investors has risen as gold prices continue to hang above the multiyear lows in December.

The Precious Metals motif, which is 84.2%-weighted with gold mining stocks, has gained 11.9% in the past month and is down 42.9% in the past 12 months. The S&P 500 is up 1% in the past month and has risen 26.1% in the past 12 months.

After moving from its lows last month, gold seemingly received another boost after the Labor Department’s tepid jobs report earlier this month, which caused some traders to reassess their expectations for how quickly the Federal Reserve will roll back its support for the economy. Some investors view gold as a hedge against declines in the dollar, or the inflation that can follow the central bank’s stimulus.2

precious metalsAny delay in the rollback of the Fed’s stimulus gives investors more reasons to bet on higher gold prices “in the short term,” Adam Klopfenstein, a senior market strategist with Archer Financial Services, told the Journal.

By comparison, gold fell 28% in 2013, largely as investors anticipated that an improving US economy would spur the Federal Reserve to reduce the pace of its bond purchases.

Echoes of last year are likely why some analysts see the recent rally in precious metals as a chance to take a less painful exit. Wells Fargo’s Sameer Samana believes that the precious-metal price downtrend is alive and well, and that investors concerned about higher inflation and a lower dollar would be better served by rotating into a diversified basket of commodities.3

For those with a penchant for hanging in there, next month’s jobs report may have a lot to do with gold’s path in the near term.

1Tatyana Shumsky, “Bullish Gold Bets Hit Seven-Week High,” WSJ.com, Jan. 10, 2014.

2Matt Day, “Gold Gains After Soft Jobs Report,” WSJ.com, Jan. 10, 2014.

3Brendan Conway, “Precious-Metals Upswing is a Chance to Get Out,” barrons.com, Jan. 22, 2014.