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Gold Prices Whipsaw Higher

So now the question becomes is this rally for real or just another fake-out. Scott Redler, chief strategic officer at, says if the SPDR Gold Shares (GLD) closes above $131.50 "it [is] very bullish for gold."

Gold will have some headwinds on Friday. Big rallies tend to spur profit taking and the U.S. Labor Department will release the jobs number for January. Expectations are that the unemployment rate will rise to 9.5% while the private sector will add 163,000 jobs. Weekly initial jobless claims fell 42,000 in the week ending Jan. 29th which is also setting the bar high.

"The jobs number is going to be good and the stock market will react to the number very positively" says Randall Warren, chief investment officer at Warren Financial Service. Warren says gold will become even less attractive and will continue to lose its luster until the "doomsayers" get out of the market.

Gold has struggled with its role as a safe haven asset but better economic data in the U.S. is drawing investor interest away from gold and into stocks. "We are sort of stuck in the middle between this revolutionary situation that we are seeing in North Africa and the Middle East versus improved economic outlook here in the U.S.," says Will Rhind, head of U.S. operations for ETF Securities.

Rhind says an inflation jolt in western countries is really needed as a catalyst for gold prices. Central banks keep warning of inflation but haven't taken aggressive action in combating it. The European Central Bank kept interest rates at 1%, choosing to focus on growth and signaling that price increases aren't serious enough, yet, to fight inflation. Eurozone inflation rose to 2.4% in January. The euro's speedy decline, however, underscored that investors are skeptical of this approach and are concerned about rising prices.

Despite the SPDR Gold Shares (GLD) 53 ton decline in January, Rhind says its ETFS Physical Gold (SGOL) has seen minimal outflows and its newly launched ETFS Physical Asian Gold (AGOL) has added 40,000 ounces since mid-January.

Rhind attributes gold's recent decline as triggering modest investor selling of other assets to buy AGOL, which stores its gold in Singapore. The GLD is often used as a trading tool because it is bigger and more liquid with $52.7 billion worth of gold currently in the trust.

Gold's struggle could wind up being a blessing for platinum, palladium and silver, all precious metals associated with "recovery" as they are used in cars, construction and technology. ETF Securities has individual ETFs for all three metals as well as a ETFS Physical WM Basket (WITE) comprised of all three but more heavily weighted to silver.
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