Much has been made of the recent declines experienced by the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products.
To be sure, a 5% drop over the past month is not attractive, but that repudiation could also be a sign that gold is oversold and with the yellow metal holding around some key technical levels, it could be ready to bounce.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. Speculation that the Federal Reserve will raise interest rates in December has been a primary catalyst behind the yellow metal’s recent dip.
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Looking ahead, the ongoing negative interest rate environment, with European and Japanese central banks cutting benchmark rates deeper into the red to promote growth, could push investors toward gold bullion as a more stable store of wealth.
“The main driver for the dollar is the demise of the other currencies regardless of the Feds inactivity. It would also appear that the stock markets are topping out at the moment so the alternative may be a move to cash, so we could be in a situation where gold and dollar go up in unison,” reports Mining.com.
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