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.

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