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By: Brian Price
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One of the worst trades of the year—gold—presents even more opportunity in the long term, U.S. Holdings Chairman Rick Rule said Wednesday.
"I think the fundamentals for gold are pretty good," he said. "If you're a momentum trader, of course, you don't want to be anywhere near it. If you're a fundamental investor, the fact that it's down but its utility stays good makes it a better buy than it's ever been."
Gold, which has lost about 25 percent of its value this year, fell 0.3 percent to $1,257 per ounce in the spot market Wednesday, a day after hitting a three-week high.
(Read more: Gold falls on news of US budget deal)
Most analysts expect the Fed to start tapering its $85 billion monthly bond-buying program in the first quarter, with only 2 percent expecting a move at next week's meeting.
I'm not a contrarian by nature, but I do like the risk-reward of betting that it does taper next week, especially with a budget deal being struck. A large part of why the Fed chose not to taper in September was the high probability of a government shutdown and debt ceiling debate, but a repeat of that next year no longer looks likely.
Between that and the strong economic numbers we've been seeing, a December taper is certainly not out of the question.
(Read more: As funds get massively short, gold could spike)
Natural gas has had a phenomenal run over the past five weeks, rising nearly 25 percent on the strength of colder weather forecasts. But as the commodity slips in early Wednesday trading, the huge rally could finally be coming to an end.
"Right now we have seen just frigid temperatures," said Jeff Kilburg of KKM Financial. "How long can that persist? We have seen a dramatic 'up' move here, and right now I want to be a seller and kind of capture this euphoria in the market."
Because natural gas is used for heating, cold weather and cold forecasts are a boon to nat gas. So the recent spate of frigid weather has lit a fire under the commodity.
(Read more: Think more frigid weather is ahead? Then buy this)
"NYMEX gas continued to rally as nothing has changed," wrote Stephen Schork, the energy expert who edits the widely followed Schork Report. "That is to say, prices continued to rise as temps continued to fall."
But on Wednesday, nat gas is staging only its third drop in 16 sessions. And Jim Iuorio of TJM Institutional Services says this is past due.
"I definitely think it's due for a pullback," Iuorio said Tuesday on CNBC's "Futures Now." "I'm with Jeff—I think it gets lower now. After all, it can't get much colder here."
Dennis Gartman believes the rally in stocks will continue, and he draws upon his years of trading experience to make that determination.
"I will simply use an old man's view of the market, and say it's been moving from the lower left to the upper right," the editor and publisher of The Gartman Letter said on Tuesday's "Futures Now." "Weakness has been properly purchased and strength has been improperly sold. It will continue to go up until the trend lines are broken—and right now they are far from being broken."
Investors must continue to obey the charts, Gartman said.
"Write this down: 'It will continue to go up until it stops,' " he said. "I've only been at this 40 years, but I'm constantly amused by attempts to discern where the top shall be, or conversely, where the bottom shall be. Stocks stop going down when they stop. Stocks stop going up when they stop. That's the best you can do."
(Read more: Byron Wien: Why I've become bullish on the market)
Gold could pop in the next few weeks, said George Davis at RBC, but once it does, it will present a terrific shorting opportunity on the path down to $1,060.
"Eventually, we will see a retest of the $1,180 area," Davis said on Tuesday's "Futures Now." Once bullion breaks below that level—its 2013 low—"we're going to see an increase in bearish sentiment that potentially takes us down to $1,100 initially and potentially the $1,060 level."
Another 15 percent below current levels, $1,060 would be the lowest gold has traded since February 2010.
(Read more: Here's what was behind gold's wacky jobs reaction)
Davis, the chief technical analyst for fixed income and currency strategy at RBC, has nailed the call on gold this year. On Sept. 5, when gold was trading at about $1,375, he called into "Futures Now" to predict that gold would drop to $1,200. On Wednesday and Friday, gold put in lows just shy of that mark, at $1,210.
Hedge funds and money managers are now less bullish on gold than they've been since June 2007, data from the Commodity Futures Trading Commission show. And that could actually be good news for the beaten-down metal.
"This could set us up for a bit of a run to the upside if we have the catalyst," said Rich Ilczysyzn of iiTrader. "But if we don't get it, then gold could go dormant for a while."
In the week ended Dec. 3, short bets on gold increased by 4,557 to 79,631 lots, and longs slipped slightly to 106,405. That means the net long position in gold fell 16 percent to 26,774 futures and options, which is the smallest net-long position since June 2007.
The interesting corollary to this fact is that from June 2007 to March 2008, gold prices rose by 50 percent.
"I believe that the market's probably too bearish now," said Jim Iuorio of TJM Institutional Services. "And despite the fact that the fundamentals are weighing on gold, market positioning may predict a countertrend rally."
As economic data have improved, many now expect the Federal Reserve to start to bring its quantitative easing program to an end. This is likely to cause interest rates to rise, making non-interest-bearing assets like gold less attractive. Meanwhile, QE has failed to stoke the rampant inflation that many have predicted. Between rising rates and little inflation, investors have largely lost their reasons for owning gold.
(Read more: Here's what was behind gold's wacky jobs reaction)
On the other hand, gold sentiment may have gotten so depressed, and gold positioning so bearish, that the upside now outweighs the downside.
"We've got some large customers that are actually starting to look at this and saying 'I'll buy it here, and put a stop below the yearly low,'" Ilczyszyn said. "The thought now is, 'We might as well just put some on down here.'"
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