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From worst to first: Why gold is about to stage an epic comeback


In sports, everybody loves an underdog. Nothing thrills the soul like a dramatic, against-all-odds comeback. On Wall Street, however, things are completely different as we’ve all been taught to cut losses and let our winners run.

But at least one investment pro is bucking that advice and is currently taking a long, hard look at gold (GLD), now that it’s 30% cheaper than it was at this time last year.

“We’ve got speculators, the big hedge funds, the big players on the street, they’re the most short that they’ve been in eight years,” says Dave Lutz, head of ETF trading at Stifel Nicolaus, in the attached video. 

Beyond this outsized bearishness, Lutz gives several other reasons why he thinks gold will outperform stocks this year, including the expected debut of gold ETFs in China.

“There’s a tremendous amount of momentum building under the surface for this yellow metal,” he says, noting increased signs of demand from China and predicting that it will overtake India as the largest consumer of the metal this year.

This is not to say that Lutz doesn’t like stocks, because his work suggests that the broad-based rally of 2013, which saw 90% of the S&P 500 (^GSPC) up as well as all ten sectors positive, has historically lead to further gains.  

“Since 1980 there’s been six occurrences when this has happened, and each time the following year has been bullish, at an average return of almost 15%,” he says.

In the meantime, Lutz will stay long stocks, be a contrarian on gold, and then leverage that bet by buying into the even harder hit gold miners (GDX) saying that either way, “the miners are going to be playing catch up.”

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