Cyprus Bank Crisis Puts Gold ETFs in Focus as Safe Haven

March 22nd at 10:30am by Tom Lydon

Gold prices and exchange traded funds are moving again as the Eurozone drama performs another act. The precious metal could continue to strengthen on heightened financial concerns and safe-haven buying.

SPDR Gold Shares (NYSEArca: GLD) and other bullion-backed ETFs have rebounded this week although they remain in negative territory for 2013.

BoostETP, an European ETF provider known for its leveraged and inverse offerings, believes gold is attracting greater interest on the “flight to safety” trade, especially if the Cypriot bailout drags Italy and Spain back into the spotlight.

The fund sponsor estimates that gold prices could break above $1,700 per ounce on a “knee-jerk reaction,” similar to what happened over 2011 when gold prices jumped 30% in five months. Gold futures have climbed back above $1,600.

Gold prices bumped higher after the Eurozone Finance Ministers asked Cyprus to impose a levy on local bank deposit holders, which many observers felt would have left a precedent that could have extended across the E.U.

If the levy talks would have extended to other troubled countries, this would have fueled a widespread run on the banks. [Gold ETFs Rally as Cypriot Deposit Scheme Rattles Investors]

“This will potentially start another round of the Eurozone banking crisis which in turn could lead into a potential sovereign crisis and drive traders into ‘flight to safety’ assets such as gold,” BoostETP said. “If banks in Cyprus are allowed to founder, then this may create another round of ‘risk aversion’ trading as well as this may set another precedent for the Eurozone crisis.”

The fund provider points to clearing resistance at $1,625 per ounce and then $1,655 per ounce. Near-term support levels remain around $1,600 ahead of $1,585 in order to maintain positive sentiment in gold. [Gold Tests Six-Year Support as Indian ETFs See Outflows]

SPDR Gold Shares

For more information on gold, visit our gold category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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