After a difficult last week, precious metals bulls have plenty of things to celebrate this week: An election mess in Italy that has re-ignited sovereign debt concerns in the eurozone; and a re-assuring Ben Bernanke that QE will continue to provide support for the metal, as long as unemployment remains above the natural rate (6.5 percent). Gold and silver rebounded nicely, still below key support levels, while ETFs tracking the metals followed suit. Gold ETFs like SPDR Gold Shares (GLD) (up 1.33 percent); silver ETFs like iShares Silver Trust (SLV) followed through in sympathy (up 1.10 percent), and Freeport-McMoRan Copper and Gold (FCX) was up 0.46 percent. Market Vectors Gold Miners (GDX) and Market Vectors Junior Gold (GDXJ) were up 1.23 percent. But how long will the rebound last?
The answer depends on how long the bullish news will last. The Italian crisis will certainly last until a new government is formed that re-assures investors about the commitment of Italy to austerity and the eurozone politicians usually say one thing before the elections and do another once in office.
The Bernanke's reassuring words won't last that long, however, for two reasons: First, QE is no longer bearish for the U.S. dollar, as central banks around the world have launched their own QEs, countering the dollar decline. Second, QE is inflationary rather than deflationary, as discussed in a previous piece.
The bottom line: The rebound of precious metals will be short-lived, as fundamentals aren't on the side of the bulls. Conservative investors may consider staying away, while aggressive investors may want to begin building short positions.