Maybe Some Upside for Gold ETFs
New York (Sept 4) The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products have been caught between potential and doubt as volatile global markets should be restoring gold’s allure but investors remain leery of commodities.
Dragging on the gold market, volatility is beginning to ease after markets try to recover from the swift correction – gold is seen as a safe-haven asset that provides a good store of wealth during tumultuous market conditions. Additionally, the U.S. dollar is beginning to strengthen against foreign currencies – gold is priced in USD, so further buying becomes pricier for foreign investors. [Safe-Haven Demand, Dovish Fed Help Gold ETFs Regain Ground]
Still, some market observers see technical opportunity with the yellow metal.
“Even as stocks drifted lower in August, gold did very little. It only managed what looked to be a dead-cat bounce. This was to be expected after a bout of selling in July that seemed to mark capitulation in that market,” reports Michael Kahn for Barron’s. “Gold did manage to climb about 7.5% from its depths, but it got a lot of help from a weakening dollar. The greenback fell 5% from high to low in August, but has since come roaring back. Gold’s bounce looks to be over and a major support level is starting to call.”
Bullion was recovering lost ground after dropping to a five-year low last month on concerns that the Fed would hike rates as early as September. Looking ahead, traders are now betting there is just a 30% chance the Fed raises rates this month.
Additionally, gold is seeing greater support from safe-haven demand after currency devaluations across Asia added to investment demand for a better store of value than paper currencies or stocks and bonds.
“I am not saying gold will fall to $1,000, but if it does I can see a lot of buying unleashed at prices not available for six years. And if it does move down there, it should be the final blow to the psyches of the last remaining bulls,” adds Kahn in the Barron’s piece.
Investors have pulled $994 million from GLD, the largest gold ETF, in the third quarter.