Market Outlook: This Precious Metals Fund is an Immediate 'Buy'

Gold is a Short-Term Buy
SPDR Gold Shares (NYSE: GLD) gained 0.86% last week. In the futures market, gold has been holding support after reaching a price objective defined by the top formed last year. Commercial traders are now more bullish than they have been at any time in the past two years.

Commercials are gold miners and other traders who know the industry better than anyone else. Miners could be bullish because they are aware of changes in demand, or they might know that supply will be tightening. Their timing is not perfect, but it is useful.
Activity of commercials in the futures market is shown as a green line at the bottom of the chart above. Raw data from the Commitment of Traders (COT) report has been converted to an index so it is easier to understand. High values are bullish and low values are bearish. Hedge fund activity is shown as the black line. They are more bearish than they have been in two years.
The next chart shows the positions of small speculators in the market. These are individual traders and smaller hedge funds. This chart shows the raw data from the COT report, which is the net position in contracts. In the most recent report, small speculators were short 683 contracts. This is the first time they have reported a short position since 2001.

In the past, buying when small speculators were short as a group would have been profitable over the next month. Three months after small speculators built up a short position, gold has been higher 62.5% of the time.
With several reasons to be bullish on gold in the short term, ProShares Ultra Gold (NYSE: UGL) is a buy. UGL is a leveraged fund and should move twice as much as gold on any trading day.
Recommended Trade Setup:
-- Buy UGL up to $59
-- Set stop-loss at $54
-- Set initial price target at $64 for a potential 8% gain
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