Fighting Inflation with Gold

My weekly op-ed in the International Business Times.

Gold and Inflation

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Gold Plunges - Do Not PANIC

The price of gold is falling by its largest amount in over two months today after Ben Bernanke did not hint of a new stimulus package.

The word on the street is that gold is falling by more than $75 per ounce due to no mention of QE3 in his semi-annual economic speech. Sure, that would be a factor for investors to take profits, but to hammer the yellow metal to this magnitude - no way!!

In the same speech Bernanke stated he will keep interest rates low into 2014. In my opinion that is a stimulus package dressed in a cheap suit. By keeping interest rates low it will continue to put pressure on the US Dollar and therefore be a positive for gold prices.

Today's sell-off will likely create a buying opportunity for long-term bulls on the price of gold. Support on $GLD can be found the the $164 to $166 range. The ETF is currently at $166.30. The selling may extend out a day or two, but as long as the support range is not breached, look for $GLD to bounce back.

Hot ETFs to Watch Today

iShares Silver ETF ($SLV) - Taking advantage of a weak US Dollar and more money flowing into the precious metals, $SLV is back to the best level since September. Even though the ETF is up 36% from the December low, it is well off the high set last April.

EG Shares Emerging Markets Consumer ETF ($ECON) - On pace to close at its best level since it began trading during the third quarter of 2010. Since 9/15/10 the ETF is up 21% versus a gain of only 2% for the iShares Emerging Market ETF ($EEM). I prefer $ECON over $EEM any day!!

Global X Social Media ETF ($SOCL) - Up over 3% today as several of its holdings ($RENN, $GPRN, and $ZNGA) are having solid days. I am still skeptical of the ETF, but the momentum may continue to push it higher.

* My firm owns shares of SLV and ECON.

Market Recap - FOMC Fuels Rally, Gold Surges

A nearly 1% rally for the S&P 500 has the index at the best level since late July 2011 and investor optimism is starting to override the fears in Europe. The move today has the index only 3% from a new 3-year high - hard to believe with all the black clouds hanging over the market. But as I have said many times in the past, there will always be black clouds, but not all of them will bring rain!

INTERESTING STORIES

• Apple ($AAPL) reports blockbuster earnings and rallies today on the news. The stock was up 6% to a new all-time high and is now the largest company in the US by market cap. And more amazing is that it could see another $150 on the upside before it is fairly valued.

• FOMC Meeting - Bernanke and his cohorts announced that interest rates will remain near historic lows into 2014 and that gave equities a boost. May are calling this the next round of quantitative easing or QE 2.5. Either way, low rates are good for corporations and stock valuations.

• Gold - Gold surged as the US Dollar fell after the FOMC news. More easing will lower the value of the Dollar and PowerShares US Dollar Index Bullish ETF ($UUP) fell by 0.45% today to the lowest level in over a month. This fall sent gold ($GLD) to the best level in over one month. {$GLD remains Penn Financial Groups largest holding.}

• New Highs - HOLDRS Biotech ETF ($BBH), Digital Realty Trust ($DLR), FEI Company ($FEIC), Pool Corp ($POOL), Weis Market ($WMK)
  

Gold Surging after FOMC Statement

The price of gold surged today after the FOMC announced it would keep interest rates near historical lows into 2014. The policy can be viewed as another round of quantitative easing by some. PIMCO's Bill Gross referred to the move as QE 2.5.

Whatever you make of it, the more important point is that the market liked the comments as did investors in precious metals. Gold rallied back to the $1700 area and the SPDR Gold ETF ($GLD) surged to the best level in over a month - up over 2%.

The gold ETF continues to be my largest holding for clients and as I stated when the metal pulled back in December - Do not give up on it! And thankfully I did not and hopefully you did not either.

There may be a bit of resistance for $GLD at the $165.50 area, which is the top of the gap formed in December, but longer term I like the ETF to retest the high of $185/share.

Must-See Chart of Gold ETF - $GLD

The chart above is of the SPDR Gold ETF ($GLD), which has fallen by 12.6% in the last 5 weeks and is down 10% in the last 12 days. A sudden panic has taken a hold of gold as news and rumors swirl about the yellow metal.

A few of the factors moving gold lower: a higher US Dollar, rumors Paulson is selling gold in his large hedge fund, rumors of maneuvering by Central Banks around the globe, and the risk-on trade is not off and hurting hold and forcing many investors that were leveraged to sell.

Technically $GLD fell through important support at the $161 area and fell right down to the next and even more important support zone of $151 - $154.50. This area is highlighted by the two horizontal black lines on the chart. The ETF closed today at $152.88, still in the range.

So far, I am still on the side of gold, BUT I will watch the next 2 days very very close.

ETF of the Day - Market Vectors Junior Gold Miners ETF ($GDXJ)

If you follow by blog (as you should), you would know my thoughts on gold and the SPDR Gold ETF $GLD. The pullback in gold brought the precious metal and currency alternative down to support and it is now at an attractive level to move higher in the coming months.

While GLD tracks the price of Gold Bullion, there are other options for investors. One Niche ETF that is out there for the risk hunger investors is the Market Vectors Junior Gold Miners ETF ($GDXJ).

GLD is up 24% over the last 12 months with GDXJ down 30%. This is a major difference in such a short time period. A lot of it has to do with the "risk off" trade that saw money come out of perceived risky assets and into more safe haven areas such as physical gold or low volatility stocks.

BUT, if I am correct in my thinking that gold will continue to move higher and eventually get to the $2000/ounce level, GDXJ and the junior gold miners will be some of the biggest winners. The one risk is similar to the last year, if gold rises due to major issues with the global economy it could limit the upside for GDXJ.