The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) have tumbled over the past month with GLD, the world’s largest gold exchange traded product sliding 8.6% during that span as investors have recalibrated expectations for an interest rate hike from the Federal Reserve in December.
The U.S. dollar has been strengthening on greater speculation that the Federal Reserve will begin tightening its monetary policy in December after the surprisingly strong October jobs report. Most raw materials are priced in dollars and historically a strong USD has pressured commodities.
Although precious metals ETFs have recently displayed some strength, gold is still in a lengthy bear market, giving some traders pause about how much more near-term upside the yellow metal has in store. [Doubters in Gold Rally]
“Investors have fled the gold market as Fed officials have indicated they would use their mid-December policy-setting meeting to decide whether the U.S. economy has improved enough to warrant higher rates. Investors are also awaiting the November employment report, due on Dec. 4, to solidify their forecast after better-than-expected jobs data for October fueled confidence in a rate hike by Dec. 16. Fed-funds futures, used by investors and traders to bet on central bank policy decisions, recently pointed to a 74% probability of rates rising, up from 46% a month earlier,” reports Manuela Badawy for Barron’s.
Gold assets look more attractive in a low interest rate environment as the precious metal is more competitive against assets that pay low interest, like bonds. Additionally, if the Fed holds off on a rate hike, it would suggests the economy is not as strong, which would also help gold attract safe-haven demand.