Gold ETFs Brush Off Central Bank Policies

November 12th at 1:50pm by Tom Lydon

Gold’s inability to pull out of its rut, especially as three major central banks execute loose monetary policies that depreciate their currencies, is a bad sign for bullion-related exchange traded funds.

So far this year, gold futures have declined 24%, and now trades around $1,276 per ounce. Meanwhile, the SPDR Gold Shares (NYSEArca: GLD) is down 23.6% year-to-date.

As gold prices faltered this year, the U.S. Federal Bank has been adding throwing billions into the economy, purchasing $85 billion in bonds per month, writes Lawrence Lewitinn for Yahoo! Finance. [AdvisorShares: Gartman on Gold]

The Bank of Japan has acquired ¥7 trillion, or about $70 billion, in bonds to stimulate the Japanese economy. [Gold ETF Outflows Accelerate in October]

Additionally, the European Central bank cut benchmark rates in half to 0.25% last week.

“I do not like gold at all here as an investment or as a trade,” Steve Cortes, founder of Veracruz TJM, said in the article. “If you look fundamentally, the world supposedly couldn’t be any better for gold. You’ve got world central banks competing to ease more than the other, with the ECB being the most recent to join the party with the BOJ from Japan and, of course, the Fed here. You’ve had the dollar very weak over the last few months. That should be a recipe for gold to soar. And, yet, it isn’t. It continues to trade lower.”

Cortes also argues that gold as an inflation hedge has not been an attractive bet, wih the Consumer Price Index only inching up 1.2% over the past year.

“There is no serious inflationary pressure in this economy and that’s because wages are simply too restrained,” says Cortes. “You need growing wages to really get inflation going. That’s what we had way back in the 1970s. You have the opposite now. So, for that reason, I think avoid or even short gold.”

Other physically backed gold ETFs include:

  • iShares Gold Trust (NYSEArca: IAU): down 23.5% year-to-date
  • ETFS Physical Swiss Gold Shares (NYSEArca: SGOL): down 23.6% year-to-date
  • ETFS Physical Asian Gold Shares (NYSEArca: AGOL): down 23.9% year-to-date

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.