The price of gold has roller-coasted since August, causing many investors to become disillusioned with its reputation as a safe haven investment. Indeed, few markets, including gold prices, can escape the consequences of wild market swings. So where will gold go from here?
A number of current events are likely to jerk the market around: the EU summit, the Fed's recent FOMC announcement, rating agency downgrades, and China's slowing economy, to name a few.
"It's all about anxiety and worry," said Nick Trevethan, senior commodities strategist at ANZ in Singapore in an interview with Reuters. "Gold is just getting lumped in with other markets as risky assets, not necessarily for the right reason."
The case for a steady gold market
After 11 years of its longest winning streak, the price of gold seems to be "correcting" itself at lower levels. But some investors aren't too worried it will fall much farther...
In a note to clients earlier, Standard Bank analyst Walter de Wet wrote he expected physical demand to return as the metal approached $1,650, with key support at its 200-day moving average at $1,617 (via Reuters).
"Since early 2009, gold has consistently bounced off its 200d MA. Unless funding issues in Europe deteriorate substantially from current levels, we expect this support to hold," he said.
The case for a bear market
But not everyone is so cheery. According to Dennis Gartman, who correctly predicted the slump in commodities in 2008, gold is poised to enter a bear market. He sold the last of his gold on Monday.
"Since the early autumn here in the Northern Hemisphere gold has failed to make a new high," Gartman wrote. "Each high has been progressively lower than the previous high, and now we've confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull." (via Bloomberg)
As evidence he points to China, where gold imports to the mainland from Hong Kong surged 51% to 86.3 tons in October to a monthly record. China imported more than 300 tons for all of 2010, said Yi Gang, People's Bank of China Vice Governor, to Bloomberg. Yet despite this surge in demand, gold prices haven't rallied higher.
"Buying of that sort should have sent gold prices soaring," Gartman wrote. "One of the oldest rules of trading is simply this: A market that cannot or does not respond to bullish news is a bearish market not a bullish one."
Investing ideas
What do you think? Is gold rebounding off its lows, or does it have more to lose?
To find out what sophisticated investors land on the debate we took a look at institutional buying data from the current quarter. We applied it to a universe of gold stocks with market caps above $300 million and took only the names with net positive investments.
Institutional buying (net purchases from mutual funds, hedge funds, pensions, and bank trust departments) signals that sophisticated investors believe there is more upside than downside to the names.
The "smart money" thinks these stocks have the momentum to push even higher -- do you? (Click here to access free, interactive tools to analyze these ideas.)
1. AuRico Gold (NYSE: AUQ): Engages in the exploration, development, and production of gold and silver mines and projects in Mexico. Market cap of $2.41B. Net institutional shares purchased over the current quarter at 12.0M, which is 4.28% of the company's 280.22M share float.
2. Yamana Gold (NYSE: AUY): Engages in gold and other precious metals mining, and related activities, including exploration, extraction, processing, and reclamation. Market cap of $11.07B. Net institutional shares purchased over the current quarter at 18.8M, which is 2.53% of the company's 741.76M share float.
3. Aurizon Mines (NYSE: AZK): Engages in the acquisition, exploration, development, and operation of gold properties in North America. Market cap of $842.81M. Net institutional shares purchased over the current quarter at 8.5M, which is 5.27% of the company's 161.37M share float.
4. Compania de Minas Buenaventura (NYSE: BVN): Engages in the exploration, mining, processing, and development of gold, silver, and other metals in Peru. Market cap of $10.26B. Net institutional shares purchased over the current quarter at 4.9M, which is 2.67% of the company's 183.77M share float.
5. Harmony Gold Mining Co. (NYSE: HMY): Engages in underground and surface gold mining operations in South Africa and Papua New Guinea. Market cap of $5.43B. Net institutional shares purchased over the current quarter at 6.8M, which is 2.01% of the company's 338.30M share float.
6. Jaguar Mining (NYSE: JAG): Engages in the production of gold, as well as in the acquisition, exploration, development, and operation of gold mineral properties in Brazil. Market cap of $500.55M. Net institutional shares purchased over the current quarter at 5.0M, which is 6.81% of the company's 73.37M share float.
7. Lake Shore Gold (NYSE: LSG): Engages in the acquisition, exploration, and development of gold properties in northern Ontario and Quebec of Canada, as well as in Mexico. Market cap of $472.18M. Net institutional shares purchased over the current quarter at 125.9M, which is 33.42% of the company's 376.73M share float.
8. NovaGold Resources (NYSE: NG): Engages in the exploration and development of mineral properties primarily in North America. Market cap of $2.26B. Net institutional shares purchased over the current quarter at 20.7M, which is 12.50% of the company's 165.63M share float.
9. Richmont Mines (NYSE: RIC): Engages in the acquisition, exploration, development, and operation of mining properties, principally gold in northeast Canada. Market cap of $364.76M. Net institutional shares purchased over the current quarter at 1.6M, which is 5.53% of the company's 28.91M share float.
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.
