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.
Inflation is the engine that drives the price of gold, silver and other metals higher. Weak employment is not a cause but a symptom of the problem. Despite China's rise, the U.S. remains the largest manufacturer in the world. At the same time that Europe has funded much of their recent economic growth by spending beyond their means, so has the U.S., albeit, not to the same amplitude. Many of the gold bulls are now beating on the quantitative easing (QE3) drum. Up until recently, inflation, a falling dollar, the declining U.S. empire and a whole host of other reasons were quickly provided as justification to move into gold. Gold bulls are now left hoping QE3 will save gold from its inevitable decline.
The greatest impact expected from QE3 is in temporarily preventing the U.S. economy from contracting. A three-day-in-a-row rise in GLD, GDX or SLV should be viewed as a bear market rally and shorting opportunity. The TLT moved above $130 with the 10-year notes' yields dropping to post World War II lows, finishing at 1.62%. While I expect a technical pullback with TLT, it won't help gold or silver. Don't get caught up in the day-to-day movements if you're a long term gold investor. With inflation, gold is able to maintain a bullish bias; unfortunately the pressure pushing down is greater than the pressure pushing higher. Gold will continue to lose appeal as long as energy prices are falling.