Gold prices fell to $1,731 an ounce on Tuesday, on track for its biggest two-day loss in two weeks, reports Reuters. The drop is partly explained by investor fears over Standard & Poor's credit downgrade warning for eurozone nations.
But should that be the case? It seems odd that gold should fall given its status as a safe-haven asset to shield investors in times of uncertainty.
According to Reuters, gold "has increasingly become prone to pressure from selling in the wider financial market, moving in tandem with other assets as investor sentiment remains fragile."
Investors are likely to keep watch on the developments of the EU summit and the European Central Bank (ECB) meeting on Thursday, when banks are expected to make cuts to its main interest rate.
Gold, the EU, and market liquidity
According to Karim Rahemtulla at Wall Street Daily, Europe's biggest issue comes from the fact that many countries function under the euro currency, but none can actually print the currency. If any could, it would, as a means to pay off debt. "Sure, it would lead to devaluation, but not default."
Without that option, the countries are at the mercy of the Union. So, will the Union decide to print more currency and inject the market with liquidity? If they do, precious metals may be the first to benefit from the inflation outlook.
"Moving forward, people will realize that hard assets -- like gold and silver -- will be the beneficiaries of all this financial chicanery," argues Rahemtulla. "The metals are on the move because there will be more dollars in the market tomorrow than there were yesterday. And there won't be a greater number of hard assets to back them up."
Karim Rahemtulla adds, "the 'solutions' offered by EU and ECB leaders have been nothing short of reckless money printing. This influx of new money should lead to a never-before-seen rally in silver and gold."
Despite gold's recent setbacks, do you feel that Rahemtulla's theory is valid?
We were wondering, if the ECB injects the market with liquidity to the benefits of precious metals, which companies do sophisticated investors think will rally most?
To find out we took a universe of gold stocks and screened them for those with the highest levels of net institutional buying in the current quarter. Our top results are listed below.
The "smart money" thinks these names have more upside than downside -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)
1. AuRico Gold
2. Aurizon Mines
3. Jaguar Mining
4. Kinross Gold
5. Lake Shore Gold
6. NovaGold Resources
7. Rubicon Minerals
8. Richmont Mines
9. International Tower Hill Mines
10. US Gold
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Institutional data sourced from Fidelity.