As Stocks Sink, Gold ETFs Say 'Remember Us?'
San Francisco (Aug 20) The SPDR Gold Shares GLD, +1.74% the world's largest exchange traded fund backed by physical holdings of gold, has had a rough go of things this year.
With the PowerShares DB US Dollar Index Bullish Fund UUP, -0.56% the Dollar Index tracking ETF, up 5 percent year-to-date, GLD has tumbled 4.4 percent. Additionally, lingering fears that the Federal Reserve will soon raise interest rates has diminished gold's allure. Those factors and others have contributed to GLD bleeding $1.39 billion in the third quarter, a total surpassed by just two other ETFs.
However, stocks have flailed in recent weeks, restoring some of bullion's safe haven allure in the process. Over the past month, the S&P 500 has lost 3.1 percent while the Dow Jones Industrial Average is lower 4.5 percent. Interestingly, GLD's gain over the same time mirror's the Dow's loss: 4.5 percent. While it still has considerable work to do to eat into the almost $1.4 billion it has lost in the current quarter, GLD has tacked on over $150 million in new assets since August 10.
Apparently, some traders are buying into the notion that GLD has more near-term upside in front of it.
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“On Wednesday, when options volume in the SPDR Gold ETF, the GLD, ran 1 ½ times its daily average, one trader bet nearly $250,000 that the ETF could continue to rally over the next two weeks. Specifically, that trader bought nearly 12,000 of the Sept. 4 weekly 112-strike calls for 20 cents each. Since purchasing a call option allows a trader to buy a stock, or in this case ETF, at a certain price for a given time, this is a bullish bet that the GLD will rise above $112.20 by Friday, Sept. 4,” reported CNBC.
Other market observers see catalysts for gold as well. For example, HSBC recently noted that gold may not be as vulnerable to changes in the Fed's interest rate policy as previously believed and major gold-consuming nations, such as China and India, could take advantage of low prices to stock up on bullion at current levels. The bank sees gold prices rallying to $1,200 to $1,225 per ounce by the end of the year.
Speaking of India, it is the world's second-largest gold consumer behind China and Indian wedding season just kicked off. Dismiss that as a catalyst if you must, but there is a reason why the August-September period is historically kind to gold and Indian wedding season is widely cited as that catalyst. © 2015 Benzinga.com. Benzinga does not provide investment advice.