The Winding, Volatile Road for Gold ETFs

October 17th at 3:24pm by Tom Lydon

Gold exchange traded funds jumped Thursday on speculation the Fed could delay tapering due to the government shutdown. However, some anticipate gold could hit a four-year low in the mid-term.

The SPDR Gold Shares (NYSEArca: GLD) rose 3.3% Thursday. GLD has declined 23.8% year-to-date.

COMEX gold futures were up 3.0%, trading around $1,320 per ounce.

Due to the government shutdown, Standard & Poor’s calculates that 0.6% was shaved off of annualized fourth-quarter 2013 GDP growth, or $24 billion was taken out of the economy, MNI reports.

The lower economic growth could allow the Fed to hold off on tapering its quantitative easing program.

“The U.S. debt deal is seen (as) positive for gold by market participants, for good reason, since the whole mess is just being postponed by 3-4 months, which makes a reduction of Fed asset purchases rather unlikely for the time being,” Commerzbank analyst Carsten Fritsch said in a Fox Business report.

While the immediate impact of the deal was positive for gold, gold remains in bearish territory, with median estimates from precious metals analysts anticipating bullion to decline to an an average $1,175 per ounce in the third quarter next year, a four-year low, as U.S. economic growth and reduced U.S. stimulus diminish demand for safe-haven gold, reports Nicholas Larkin for Bloomberg. [Pain for Gold ETFs May Repeat in 2014]

“Desire to buy gold as a hedge against the consequences of monetary policy has diminished,” Tom Kendall, an analyst at Credit Suisse Group AG, said in the Bloomberg article. “When you’ve got other asset classes, equities in particular, doing so well, then it’s hard to divert investments out of them and into something like gold, which is falling.”

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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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