Gold May Have Hit Bottom, for Now
Gold may have seen its low price for now, as there are signs of consumer and hedge fund interest in the precious metal, analysts say.
The metal rebounded by $100 — nearly 8 percent — since hitting a low on Tuesday of $1,321, its lowest level since January, 2011. The most active contract for June delivery, rose $25.60, or 1.8 percent to settle at $1,421.20 per troy ounce.
"I think the most important thing is there's been a marked reaction by consumers and retail investors to the drop in price. It's mostly, but not entirely, from the emerging world," said Jim Steel, HSBC chief commodities analyst. "But China and India combined have lot of buying power. It's quite fragmented. It's very much at the retail level. It's literally consumers reacting through coins and small bars. It's really a major driver in us going $100 above the low."
Stateside, the U.S. Mint's website says it has sold 167,500 ounces in gold coins so far this month, more than eight times year ago levels and up from 54,000 for all of last month.
(Read more: Can the Gold Bounce Last?)
"I think we temporarily bottomed, and I think the market is taking a second look," said RBC analyst George Gero. "The next question will be whether the asset allocators, the funds, feel that the cheapest gold price in two years merits repurchasing."
Hedge funds and other speculative investors were putting funds into gold, even as the price was plunging last week. The Commodities Futures Trading Commission data showed that the net long money rose by $950 million to $56.5 billion in the week ending April 16. Gold was down 7 percent last week
"The hedge fund stayed with gold but they were buying options against the ETFs. They were buying put options," said Gero. "Now you have another option expiration coming on Thursday. You generally get more volatility prior to an options expiration. Normally you would see a little selling Thursday and short covering Friday, but this could be different based on what's taking place. I think it's going to be less of a violent event than it usually is. Most of the volatility has taken place, and you're going to see book squaring ahead of the weekend." Options on gold, silver and copper expire Thursday.
Some $2.2 billion left the SPDR Gold Trust ETF GLD for the week ended April 17, its third largest weekly outflow ever.
(Read More: Hedge Funds Show No Fear Over Gold Plunge)
"What everybody was talking about was the tons of money that left the ETF, and they're surprised tons of money didn't leave the Comex. I think if they followed open interest, there really hasn't been that much exodus from Comex," Gero said. He said going back to last August, there has been a decline in open interest in the futures from 492,000 to the current 416,833.
He said there was a bigger exodus in January and February. "A lot of contracts left over the last few months as asset allocaters were moving money to stocks," Gero said. "The same thing happened with the ETFs, but for some reason it accelerated after last week's fears the euro zone would have to sell gold."
Last week's big decline was sparked in part by reports that Cyprus would sell 40 tons of gold. Gold entered bear market territory April 12 and continued to decline last week.
(Read More: No Shine: Gold Plunges Into Bear Market Territory)