It may have been the U.S. dollar's rally in September that torpedoed gold mining stocks, like Goldcorp Inc. (NYSE:GG), and the gold commodity ETFs, like the SPDR Gold Trust (NYSE:GLD). The former fell more than 14% from peak to trough a few weeks ago, while the latter slumped nearly 13.7%, from high to low, last month. However, it wasn't the greenback's demise that got gold names going again on Tuesday. This time around these names are rebounding for the reason they were going nuts all year long: because traders are scared senseless the global economy is going to collapse again.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Of course, a global economic collapse will torpedo most currencies, so in many ways the rebound in gold on Tuesday was a currency-based trade; it was just a preemptive, and possibly presumptuous, one. It wasn't just gold though, silver popped too. The iShares Silver Trust (NYSE:SLV) jumped more than 5% on Tuesday, pulling First Majestic Silver Corp (NYSE:AG) and Endeavour Silver Corp (NYSE:EXK) up with it.

That's what adds a layer of legitimacy to the new-found bullishness. If it were just gold, investors could chalk it up to a little volatility, perhaps just a temporary emotional jolt. With gold, silver, platinum and palladium all moving higher, though, it's tough to say it's mere coincidence. This rebound in precious metals, so far, has been a calculated and strategic one. More often than not, that's how long-lasting rallies begin. (For more on commodity trading, check out How To Invest In Commodities.)

As for where this is all going, opinions so far have varied. MF Global's Adam Klopfenstein noted that gold was moving up with bond prices, as yields fell. The dollar as well, as the yen, also inched higher. He suggested it was the effect of a widespread "flight to quality," as fears of a failed summit in Europe started to swell, when Wednesday's meeting was cancelled. It's not a tough to understand sentiment; it's not likely the meeting was nixed, because all the problems were solved a day earlier than planned.

Other experts suggest the plunge in consumer confidence to multi-year lows will lock the Federal Reserve into a dovish mindset, which usually leads to even-lower interest rates and lots of cheap dollars; the kind of scenario that prods gold prices higher. (For more on the Fed's interaction with the market, read When The Federal Reserve Intervenes (And Why).)

The Bottom Line
Regardless of the reason for the strength, many pros are expecting even just a little more strength to lead to a lot more strength.'s managing director Zachary Oxman, for instance, feels the next time gold closes above $1700 per ounce, it could spark a rally to $1900. With that possibility against the developing economic backdrop, gold and mining stocks are brewing up a decent risk/reward ratio again.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, James Brumley did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>

You May Also Like

Trading Center