This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Buying Gold Now Is a Sucker's Bet

NEW YORK ( TheStreet) -- Gold bulls received a long-awaited reprieve Friday from falling prices in gold-related stocks. Volatility after the moves gold has experienced lately are expected, and some say welcomed compared to the stock market. Just be careful not to confuse a bear market rally with a bull market. We can look at where we are now and where we are headed to know why gold prices are not headed back to $1,800-plus any time soon.

Market Vectors Gold Miners ETF GDX (GDX) closed near the 60-day moving average at $46.58 up 6.5%; gold-price-tracking ETF GLD (GLD) jumped over 4% to close at $157.50. GLD highs of the day came just short of the 60-day moving average, the near-term technical resistance level.

I shorted GLD twice on Friday. The first time I shorted GLD was in the afternoon near the high of the day. I covered the short about an hour later for a small gain. In the last 10 minutes of trading, I shorted again into the spike immediately before the price dropped again.

I like bear market rallies as the moves are generally strong and reasonably predictable. As anyone can see looking at a gold chart, prices do not move straight up or straight down. The volatility experienced can be unsettling and unnerving, even when it is expected. (Read why I believe gold is well on its way back to $1,200 an ounce).

Silver, represented with the silver trust ETF SLV (SLV) didn't fare as well as gold, climbing just over 3% in Friday's trading. Gold- and silver-related stocks are barely above the lows of 2012, trading as expected in an economic environment void of inflation. Although some have a stronger grip on the doctrine of $2,000 gold than they do on economic reality, you should not buy into this sucker bet.

Lack of Inflation

Stocks are performing poorly in 2012, however, it's no wonder the stock market continues to beat the metals market. After all, companies are still making profits, with some paying handsome dividends. Gold bullion not only is void of dividends, gold and silver bullion has a net negative carry cost. Negative carry cost, while important, is not driving and silver lower. What's notable is the lack of inflation in the U.S. economy.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
GDX $24.28 4.46%
UNG $6.68 -3.67%
SLV $16.77 2.38%
AAPL $95.03 -2.90%
FB $116.73 7.20%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs