CNBC Stock Blog

Pros Say: Gold an Over Crowded Trade These Days


Stock prices steadied at modestly higher levels as Wall Street staked a rally on rising prices of gold and oil. Weakness in the U.S. dollar helped propel commodities broadly as gold jumped above $1,000 an ounce but was retreating as noon approached. Crude oil reclaimed the $70 a barrel mark. In the meantime, the dollar hit its lowest level in nearly a year against a basket of currencies. Read and listen to what the pros had to say...

S&P Could Slump to 870

The S&P 500 is running out of steam and could slump to 870 pointsif a key support level is broken, said Roelof van den Akker at ING Wholesale Banking. “This uptrend is running out of steam … the momentum chart is already showing a series of lower peaks and that’s the same situation as in June, July of this year and this was the sign of a modest 8 percent correction in the equity markets,” he said.

Not Out of the Woods Yet

R. Glenn Hubbard, former chairman of the Council of Economic Advisers, said although there won't be a double-dip recession, the recovery will be relatively slow. “We’re better, but we’re not out of the woods—it’s going to take a while for consumers to rebuild and Washington has gotten awfully complacent about financial reform—we’ve got some unusual policy coming down the pipe,” he said.

Financial Risks Still Unsolved

The extent of government stimulus measures is unbelievable and the stock market is right to be rising, but the risks in the financial system remain unaddressed, said Will Hutton of The Work Foundation. “The structure of modern finance was very unstable and the financial system was getting too large compared to the real economy and contained a lot of systemic volatility and risk.”

US Jobless Rate Coule Peak at 10%

The higher-than-expected August U.S. unemployment rate of 9.7 percent "is a short-lived trend," said David Page from Investec. “That trend is likely to continue.” He expects the economy to grow in the second half of this year and accelerating gently into 2010. “But that acceleration not taking growth sufficient to stop the rising unemployment until the middle of the year,” he said.

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‘Buy on Dips’ Will Push Rally Further

"The concern now is: is it almost too good to be true? We've had a fantastic rally. We're going to get some volumes back in the next few weeks," said Justin Urquhart Stewart from Seven Investment Management. He said there are still a lot of investors still sitting on cash who have not participated and are keen on getting into the market before the year-end. “So 'buy on the dips' will push the rally further but volatility will remain,” he added.

Gold Gains are Limited

There is a chance that the price of gold could jump to $1,100 per ounce or above, but fundamentally it is not justified at this stage, said Christian Gattiker from Julius Baer. He sees the upside for gold prices as limited. “It’s a bit of an overcrowded trade these days—I expect, if we really jump above the $1,000, we might end up at another 5 to 10 percent, but that’s probably it for the time being.”

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