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Gold Bugged: Contrarians Not Ready to Give Up Yet

Jeff Cox

Gold bugs, meet your falling knife.

With the metal hitting a succession of three-year lows recently, its proponents find themselves trying to catch the proverbial plunging dagger that comes with a collapse in prices.

Yet some traders have yet to give up, believing that gold's demise is nearing its end.

(Read More: I Really Like Stocks, Gold at Its Worst: Gartman )

It's part of a broader contrarian view that figures investors are overestimating the factors colluding against precious metals. The bear market in gold has seen a 2013 price drop that approached 30 percent this week, falling below $1,200 for the first time since August 2010.

But gold bugs are a resilient species, and they aren't about to go down easy.

"Short gold futures positioning on COMEX is at an all-time high and nearly every broker is now negative gold," analysts at ETF Securities said in a report. "Therefore, while further downside in the short-term is possible, investors with longer-term time-horizons may start to look at the recent sell-off as a longer-term accumulation opportunity."

For most of 2013, though, investors have been running for the exits as fast as their trading platforms can carry them.

The SPDR Gold (:SGLDSS-SG) exchange-traded fund-a highly popular way for investors to get in on the trade without holding physical gold-has seen more than $18 billion in outflows this year, losing nearly 30 percent of its assets under management, according to IndexUniverse.

(Read More: Gold Crashes Through Production Cost Levels )

Some of the recent selling likely was related to fears that the Federal Reserve would begin decelerating the amount of money it was creating to buy bonds. The Fed currently spends $85 billion a month on the quantitative easing program, which has been accompanied by fears of inflation that have yet to materialize. Gold has long been thought of as an effective inflation hedge.

But even when Fed officials on Thursday said QE would not end as long as the economic data remained soft, gold continued to sell off despite a Treasury yield drop.

The gold proponents at ETF Securities say the softening economy will actually help gold prices because it will keep the Fed in the money-printing game.

"If this occurs, the Fed will likely step back from QE reductions. With gold positioning so negative, this has the potential to stimulate a strong short-covering gold price move," the report said.

The team at ETF Securities is not alone in sounding the gold resurgence theme.

Capital Economics predicted that gold will suffer more near-term troubles but "there are also still some plausible scenarios that could lead to explosive gains in the next few years."

MacNeil Curry, technical strategist at Bank of America Merrill Lynch, issued a plaintive "GOLD BEARS BEWARE" warning in a research note, saying proprietary models at his firm suggest a bottom is near.

BofA holds a strongly positive stance on gold, beginning 2013 with a $2,000 price target for year's end and $2,400 for 2014.

(Watch: Digging Into the Gold Pessimism )

Curry said the price is likely to linger around $1,200 an ounce for a while, "but this decline is in its final stages."

A bullish case for gold would be made once the metal cracks $1,270.

However, Curry said in in email that the $2,000 target is no longer valid, though he didn't indicate where the new expectation lies.

"There is almost no way that will happen now," Curry said.

-By CNBC's Jeff Cox. Follow him @JeffCoxCNBCcom on Twitter.

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