Should Gold Investors Be Skeptical of the Rally?

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Gold has been the Rodney Dangerfield of asset classes in recent years. The precious metal received no respect from market participants and became the biggest joke on Wall Street as it suffered a brutal correction from record highs. Making matters worse, many investment firms providing coverage filled headlines with dire forecasts. Gold prices have rebounded and sentiment appears to be changing, but should investors remain skeptical?

After posting its first annual loss in more than a decade last year, the price of gold is acting very differently in 2014. In only two months, gold has managed to bounce 11 percent and is off to its best start to a year since 1983. The miners are performing even better. Shares of the Market Vectors Gold Miners Index (NYSE:GDX) are up 26 percent year-to-date, while its junior counterpart is up an astounding 41 percent. Silver, often referred to as gold’s little brother, is also participating in the rebound by logging its best rally since 1968.

While many firms remain bearish on gold, some are changing their outlooks. UBS recently revised its forecast for gold this year. The firm hiked its three-month outlook from $1,100 per ounce to $1,350 and believes gold prices may average $1,300 this year, up from a prior estimate of only $1,200.

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