Investors are already hedging for the worst ahead of the European summit held this Thursday and Friday. Interestingly, gold exchange traded funds are getting back some of their luster as physical gold attracts another round of safe-haven plays.
On Monday, gold ETFs like the SPDR Gold Shares Fund (NYSEArca: GLD) and the iShares Gold Trust (NYSEArca: IAU) were both slightly higher after Cyprus became the fifth E.U. member to ask for a bailout due to Greek debt exposure, Spain officially asked for a bailout as a result of bad debt and Germany spoke against E.U. bonds, writes Christian Magoon at GoldETFs.com.
Magoon suggests that the short-term spike in gold interest reflects interest from safe-haven investors as the markets expects more trouble out of the Eurozone and greater pressure from exacerbating financial issues and political tensions. If the euro pact were to dissolve, gold would be an attractive store of value, outside of the U.S. dollar.
However, the Monday bounce may also be due to the prior week’s poor showing, both GLD and IAU were down a little under 3% over the past week – gold weakened in light of no new quantitative easing policy.
Looking ahead, Magoon believes gold ETFs will remain bound in trading range as investors anticipate Eurozone updates. While he thinks an endgame is around the corner, Germany may still keep the idea alive and prolong the crisis through finding a common ground with member states, which would push more traders to gold as a hedge against a depreciating euro. [What Will Drive the Next Leg of the Gold ETF Bull Market?]