Macro Issues Lift Gold ETFs

February 3rd at 12:25pm by Todd Shriber

Following a brutal 2013 in which the major physically-backed gold exchange traded funds plunged 28.3% with two of those funds ranking among the 10 worst ETFs for annual outflows, bullion has started 2014 on much firmer footing.

Last month, the yellow metal posted its best performance in five months, one of the few asset classes to start 2014 on an upbeat note.

“Gold ended the first month of 2014as one of the best performing assets, gaining of 3.9% over the month. The S&P 500 declined 3.5%, the US dollar rallied and emerging markets equities as the Fed began tapering its bond purchasing program,” according to ETF Securities.

The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) gained 3.3% apiece last month. Gains for gold ETFs come after “global commodity ETP assets under management (AUM) declined by $78bn to $122bn in 2013 on the back of a sharp decline in the gold price and outflows from gold ETPs. The decline in gold ETP AUM accounted for 91% of the decline in all commodity ETP assets in 2013,” said ETF Securities earlier this year. [Commodity ETP Assets Plunge]

“Following the sharp depreciation of the Argentine peso and Turkish lira in recent weeks and  less monetary stimulus from the Fed, current account deficit emerging markets countries may see further volatility as markets adjust to continued tapering from the US Fed. Gold is likely to be a key beneficiary of this trend, as vulnerable (and even not so vulnerable) countries, look for stores of value outside their own country currencies,” ETF Securities said in a research note out Monday.

The ETFS Physical Platinum Shares (NYSEArca: PPLT) has traded slightly higher to start 2014, but the ETFS Physical Palladium (NYSEArca: PALL) is off 1.3% year-to-date despite labor strife in South Africa. South Africa is the world’s largest producer of platinum and second-largest palladium producer. [Higher Platinum Prices on the Way]

“Emerging markets turmoil and general negative sentiment towards cyclical assets may pressure platinum and palladium in the very near term, however strong structural demand and supply constraints should keep prices on a medium term uptrend in our view,” said ETF Securities.

Gold Price Change in Various Global Currencies

Chart Courtesy: ETF Securities

Tom Lydon’s clients own shares of GLD.