It has been the go-to trade all year long and is still miles ahead of everything except for Volatility (VIX). And yet, in just a few short weeks, gold's brief under-performance compared to the suddenly hot U.S. stock market has tested the conviction of gold owners.
"There's a technical or trading bull case for gold and a fundamental bull case for gold," says Michael Purves, chief market strategist at BGC Partners, who has been unwavering in his bullion bullishness all year long. In the attached clip he explains that the broader trend for buying gold now is as strong as it was one, three, or five years ago. As a result, his price target is $2000 an ounce by March 2012.
Technically, Purves is also encouraged by three years of support that gold has enjoyed from the 150-day moving average, which he says has been "respected extraordinarily well" and is close to being retested again.
From his point of view, gold's short-term slump is partly due to an ownership transition, which he describes as "a process of going from less stable hands to more stable hands."
Specifically, Purves points to the massive, high profile, forced selling by hedge fund manager John Paulson, who is paring down a 3 million ounce position in gold --a stake that Purves says is larger than the gold holdings of the Reserve Bank of Australia. At the same time more stable central banks have gone from being net sellers to net buyers of gold in the past few years.
But for all this bullishness, Purves saves his real firepower for the gold mining stocks, which he owns via the Market Vectors Gold Miners ETF (GDX). While he says the miners are "incredibly volatile" and actually touched a one-year high and one-year low within a three week period in September, he's a long term believer and prefers this basket over the basic (GLD).
"If you put gun to my head, I'd have to go with the GDX long term," he says. "Gold is good and GDX is better."
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