Exchange traded funds backed by physical holdings of gold and silver, including the SPDR Gold Shares (NYSEArca: GLD) and the iShares Silver Trust (NYSEArca: SLV), tumbled Thursday as traders were seen positioning for Federal Reserve tapering at the policy meeting next week. Waning fears over an imminent U.S. military strike against Syria also plagued gold because of the yellow metal’s safe-have appeal.
Although GLD, the largest gold ETF, is experiencing inflows for the first time since early 2013, gold futures would need to rally by more than $300 an ounce before the end of the year to ensure the yellow metal does not suffer its first annual loss since 2000. Some market observers believe the recent precious metals rally is no more than a blip before the downtrend that has been pervasive this year resumes. [Gold Miner ETF Pulled Down by Syria, Fed Fears]
“I think gold today looks like as good a short as I’ve seen in some time,” Dan Dicker of Oilprice.com told Yahoo’s “Breakout.” “When those retail customers roll over they tend to do it fast and they tend to do it for big numbers.”
Dicker added: “This looks like a very, very bad year to be a long-term gold holder.”
The outlook for silver, gold’s cheap, more volatile cousin, is similarly downbeat. Already the second-worst performer this year among the the 24 commodities in the Standard & Poor’s GSCI commodities index, silver could be further crimped by faltering industrial demand. Slowing economic growth may cause further price declines because about half of demand goes to industrial applications from solar panels to batteries, reports Nicholas Larkin for Bloomberg, citing the Silver Institute.
Silver prices reside just over $21 an ounce, but Goldman Sachs sees that number falling to $19.60 in a year, according to Bloomberg. Still, holdings in silver ETFs have increased this year even as investors have not been shy about pulling capital from gold funds. [Why Silver ETFs Have Underperformed Gold]
It is widely expected that the Fed will reduce its $85 billion in monthly bond purchases to $75 billion following the meeting next week. Any surprise on that front that is seen as good news for the U.S. dollar will likely turnout to be bad news for dollar-denominated commodities such as gold and silver.
iShares Silver Trust
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.