Gold ETF Investors Test the Waters After Huge Q2 Sell-Off

July 1st at 4:00pm by Tom Lydon

Gold prices, along with related exchange traded funds, are experiencing their largest gain in weeks after the worst quarterly drop in almost 40 years pushed gold below $1,200 an ounce.

The SPDR Gold Trust (NYSEArca: GLD) was 2.2% higher during trading Monday. Over the past three months, GLD plunged 22.9%.

Gold futures were up 2.6% Monday, the largest gain in nine weeks, Bloomberg reports. Gold is now trading at around $1,254 an ounce.

After gold prices dropped 23% in the last quarter, the largest decline since 1975, physical demand for gold bullion has picked up, notably in China where gold was trading at a premium of about $36 an ounce, according to Tim Gardiner, a managing director at TD Securities Inc. [Largest Bullion ETF’s Assets Cut in Half on Gold Plunge, Outflows]

“Physical demand in Asia continues to be strong,” Carlos Perez-Santalla, a broker at Marex North America LLC, said in the article. “The focus on the Fed stimulus program and when the tapering may begin has begun to wane.”

“With all the easy money floating and some economies continuing to stimulate, we will see inflation, and gold will find favor at some point,” Martin Murenbeeld, the chief economist at DundeeWealth Inc., said in a Bloomberg article. “Gold is going through a mid-cycle correction, but the fundamentals for higher prices remain intact.”

Nevertheless, hedge funds reduced bets on a gold rally to a five-year low, cutting net-long positions by 20% as of June 25, reports Deborati Roy for Bloomberg. Meanwhile, holdings of short contracts were up 5%, the second-highest on record, according to the U.S. Commodity Futures Trading Commission.

Additionally, Goldman Sachs analysts project prices to fall as low as $1,050 per ounce by the end of next year, compared to its prior forecast of $1,270, due to Fed tightening and quantitative easing “tapering” down the road.

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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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