Gold, Silver Prices to Rise in Q4: ETF Strategists

Steven Bobson, Europe & Americas Editor
September 28, 2012 /

The Federal Reserve’s third round of quantitative easing will certainly ignite inflation, sending gold and silver prices higher, say ETF investing advisers. They overwhelmingly favored bullion and miner ETFs when asked last week for their best commodity investing idea for the fourth quarter.

• Brett Manning, market analyst at in Chicago:

SPDR Gold Shares ( GLD ) is poised to outperform as the Federal Reserve has pledged to print money indefinitely. The basis for this is pretty simple: A lot of people were really excited about gold a year ago. Then this market endured a year-long correction filled with a lot of short-duration, large-percentage sell-offs that worked to shake out all the loose hands.

As this correction progressed, the world largely began to doubt the Fed’s willingness to print more money in the face of moderate growth. That all changed on Sept. 13, when (Fed Chairman) Ben Bernanke announced that the Fed would move back in and start indefinitely expanding its balance sheet for the foreseeable future.
The scramble back into gold has already begun, but it should have quite a bit further to go, given how effective the correction period was in reshaping market sentiment toward apathy or bearishness from the exuberance of August 2011.

What QE1 (quantitative easing) and QE2 did for gold should actually be amplified this time around if we are to take Bernanke at his word that, this time, they will continue flooding in excessive liquidity even after they are seeing signs of strong growth.

In any case, the long-term trend for gold is up. And, provided the Fed doesn’t run into any mechanical obstacles in implementation, then the only real danger to gold bulls here would be a very rapid acceleration in job growth for the U.S. on the near horizon.

Given the uncertainty posed by the upcoming elections, the potential for a sharp drop in government spending, and the decelerating demand figures showing up in the corporate sector, the odds suggest one is safe for the time being from such an evolution of context.

But one is urged to avoid “trading” gold, which is a notoriously difficult task at any time. At this point, a lot of short-term capital is likely piling in on every breakout that comes along because the case for immediate appreciation is so easy to make, as I have done here. But that type of trader consensus makes the road bumpier, not smoother.

• Jay Pasch, independent trader and co-founder of in Minneapolis:

We are pure technicians and statisticians and do almost no fundamental work. The Comex gold-futures contract remains on a tear after breaking away from a 12-week double-bottom chart pattern on Aug. 21. Over the past month, the 143-point breakout move has driven the gold contract up nearly 9% as of the Sept. 18 close at $1,771.20. (It was trading at $1,780.30 midday Thursday.)

This dramatic break-away move has also triggered the breakout from a much larger descending-triangle price pattern that measures to a contract high of $1,942 an ounce, which was set back on Sept. 9, 2011, or nearly 10% from current levels.

Direxion Daily Gold Miners Bull 3X Shares ( NUGT ) is one way to play the bullish move currently under way in gold. We prefer the triple leverage because, if we are right, the profit potential is greater.

NUGT broke out of a bullish, double-bottom chart pattern, when it cleared 14.41. The double-bottom projects a price target of 21.10. Looking further out on NUGT’s weekly chart, however, there is no real price resistance until the 27 area, a target that we think is entirely achievable by the close of 2012.

• Adam Koos, president of Libertas Wealth Management Group in Columbus, Ohio, with $48 million in AUM:

More economic stimulus from the Federal Reserve was a matter of when — not if — because of high unemployment and underemployment. The Fed has tried QE1, QE2, Operation Twist 1, Operation Twist 2, and each time, the markets experienced a short burst. The Fed seems married to the philosophy of Keynesian economics. To not implement another round of stimulus would’ve shown it’s given up on its strategy.

While I did not see “open ended” QE as a possibility until European Central Bank President Mario Draghi announced the ECB’s plan, “QE Infinity” made total sense from a psychological standpoint. It makes sense for the Fed to just print money indefinitely until it works.

Of course, what if it doesn’t work? It’s all but guaranteed that increasing the money supply will eventually create an inflation problem. What QE Infinity brings to the table is a potentially new stock market bubble as well. The market gets flooded with zero-interest dollars. Institutions will speculate with the money to get a better return, thus artificially pushing these markets higher until a big, overly inflated bubble pops. Add that to inflation and the picture gets pretty ugly.

I like commodities and commodity stocks because they partially act as inflation hedges. Historically, when the U.S. is in a low-and-rising interest-rate environment, commodities have been the best performing assets.

I’m not positive thatiShares Silver Trust ( SLV ) will offer more growth over GLD. But the probabilities are in silver’s favor because the market has been in favor of gold for some time. If you superimpose a gold and silver chart on top of one another, you’ll see silver hasn’t grown as fast as gold on a percentage basis. Silver should have more room to run to play catch-up with gold.

I would also recommendGlobal X Silver Miners ETF ( SIL ) andMarket Vectors Gold Miners ETF ( GDX ). I’m waiting for them to pull back to open a position because both are pretty overbought right now.

• Jonathan Citrin, CEO, and Viktoria Palushaj, market analyst, of Critrin Group in Birmingham, Mich. with $55 million in AUM:

Our firm sees a wide disparity between market returns and economic fundamentals. The market, which is typically known as a leading indicator, has seemingly become a misleading indicator. Despite domestic equity market performance being quite strong and the apparent willingness of global world bankers to keep major indices increasing, poor economic fundamentals do not support the gains.

In the fourth quarter, the major markets should revert to the mean, declining globally, particularly in the U.S. Markets will not be pleased with economic data reported early in the coming quarter, including lackluster employment gains and slower-than-necessary gross domestic product growth.

We are positioned defensively and expect alternatives such as GLD,United States Brent Oil (BNO) and iPathS&P GSCI Crude Oil ETN (OIL) to outperform. A possible pickup in European consumption mixed with unrest in the Middle East could make oil prices rebound after falling recently. True production could be increased to mitigate price pressures, but not enough to keep up with global demand if international economies, especially Europe, finally find their stride.

Oil is volatile. But it has the potential for considerable gains and is a hedge against more turbulence among the world’s oil producers.


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