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Gold Slumps to 6-Week Low, But Should Hold at $1,700: Purves


With stocks now officially erasing all of their post-QE3 gains - and then some - it would seem logical to compare the decline in equities with a comparable drop in gold prices over the same period.

While both the S&P 500 and Gold have shed close to 4% from recent highs attained during the easy-money aftermath of the Fed's September gift, their slumps are "very different," says Michael Purves, chief global strategist at Weeden & Co.

As he explains in the attached video, the slump in stocks is related to weaker-than-expected earnings, whereas gold is still ''traded as a form of money" and "is really about long term currency diversification over a wide range of investors."

In fact, this currency correlation is why Purves also discloses a preference for gold over silver, as well as the more industrial-linked platinum and palladium.

"The case has been clearly set, not only by our central bank but other central banks, for long term strategic softening of their currencies," he says, "and that all favors gold." And he says it should also support the precious metal in the $1,700 an ounce level.

To be sure, he says the failure at $1800 and subsequent declinse have been sharp, as has the ''rapid escalation in speculative interest." While bullish on all four metals, he points points out that "central banks don't buy platinum, palladium or silver," adding that the only thing that looks even better here than the SPDR Gold Shares ETF (GLD) is the Gold Miners ETF (GDX).