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Gold Prices Whipsaw Higher

Stocks in this article: GLD SGOL AGOL WITE NEM FRG

NEW YORK ( TheStreet) -- Gold prices drastically reversed directions and popped higher Thursday as technical buying and the fear trade came back to life.

Gold for April delivery soared $20.90 to $1,353 an ounce at the Comex division of the New York Mercantile Exchange, after a pretty uneventful morning. The gold price today has traded as high as $1,356.60 and as low as $1,325.30. The spot gold price was popping $17.10, according to Kitco's gold index.

The U.S. dollar index was rising 0.85% to $77.75 while the euro shed 1.23% to $1.36 versus the dollar.

Gold's sudden reversal left analysts scrambling for an explanation. Jon Nadler, senior analyst at Kitco.com, points to the "Middle East unrest excuse" as reports indicated that at least 6 people were killed as pro-Mubarak supporters clashed with anti-government protesters. Chaos and violence can make gold appealing as a safe haven asset.

With gold up double digits so quickly, the finger also points to large hedge fund buyers and buy orders, meaning that traders commit to buying gold at a certain price and once the rally hit they were forced to pull the trigger.


The problem with technical buying, as we saw at the end of 2010 and early 2011, is that those buyers are fickle. They are typically not term holders but in it for a short term trade evidenced by gold 7.5% selloff in January as fund managers dumped positions.

Another culprit is late-buying from China. The country is kicking off its New Year celebration today and George Gero, senior vice president at RBC Capital Markets said "oversold gold was discovered by bargain hunters trying to satisfy orders resulting from China being closed this Lunar holiday week."

The last finger was pointed at Fed Chairman Ben Bernanke, who reiterated his commitment to keep rates low for the long term in his speech at the National Press Club. Some analysts were predicting the Fed could raise rates sooner than expected in light of strong economic data, but Bernanke killed that idea.

Bernanke touched on inflation saying "we have recently seen significant increases in some highly visible prices ... Nevertheless, overall inflation remains quite low." The U.S. inflation reading, factoring in food and energy, is up 1.5%, the lowest reading from all its peers.

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