Gold fever is abating, with related exchange traded funds have taking a hit as global factors weigh on gold interest.
The SPDR Gold Shares (NYSEArca: GLD) has declined 14.9% year-to-date as the fund has shed 300 tons of gold. [Gold ETFs Could Shed Another 250 Tons of Bullion: Analysts]
Gold prices have weakened on overseas actions, such as the Cyprus financial crisis and the slower China economic growth, writes Nur Tarkak for The Motley Fool.
In Cyprus, the Cypriot central bank contemplated selling its gold reserves to meet its financial needs, causing panic among gold traders who feared a sudden influx in supply.
In China, a growing market for physical gold, the unexpected slowdown has made economists uncertain about the future of bullion.
Additionally, the rally in the global equities has also lured safe-haven investors away from gold and into riskier assets.
Gold futures were trading around $1,398 per ounce Wednesday. [Gold ETFs Fuel Selling as Prices Try to Hold $1,400]
Gold prices dipped below the psychological $1,400 barrier as the tame U.S. inflation data triggered selling – gold has traditionally been a safe store of value and hedge against inflation, reports Tatyana Shumsky for the Wall Street Journal.
“It’s the same set of factors, but they’re coming together at once for an unusual headwind,” George Gero, a senior vice president with RBC Capital Markets Global Futures, said in the WSJ article.
Meanwhile, gold miners continue to underperform. Barrick Gold (NYSE: ABX) saw significant losses after posting worse-than-expected revenue and profits. The Market Vectors Gold Miners ETF (NYSEArca: GDX) has dropped 38.1% year-to-date.
Nevertheless, Tarkak points out that demand out of Asia, notably India and China, is expected to increase, especially as the emerging middle class utilize the precious metal in investments and demand for gold jewelry rises. For instance, since 2007, Chinese demand for gold has increased by an average 27%.
For more information on gold, visit our gold category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own GLD.