ETF Trends
ETF Trends

A recently turbulent market environment has not been a boon for gold exchange traded funds as 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 are down close to 2% over the past month.

With the Fed’s September meeting now in the rear view mirror, gold ETFs could be lacking catalysts for additional near-term upside.

Dragging on the gold market, volatility is beginning to ease after markets try to recover from the swift correction – gold is seen as a safe-haven asset that provides a good store of wealth during tumultuous market conditions. Additionally, the U.S. dollar is beginning to strengthen against foreign currencies – gold is priced in USD, so further buying becomes pricier for foreign investors. [Safe-Haven Demand, Dovish Fed Help Gold ETFs Regain Ground]

Additionally, gold is seeing greater support from safe-haven demand after currency devaluations across Asia added to investment demand for a better store of value than paper currencies or stocks and bonds. Bullion was recovering lost ground after dropping to a five-year low last month on concerns that the Fed would hike rates as early as September. Obviously, a rate hike for 2015 can now only happen in October or December.

Gold has been in a 2-year bear market, which has seen failed rallies on the back of various news events. Continued strength in the US economy and labor market has offset political and economic events since the Gold market turned bearish in 2013.

Struggling to break free of that bear market, gold is looking for some much-needed stability.

“Traders, in general, have a case of Fed fatigue, waiting for the eventual tightening of interest rates from the central bank. While the FOMC’s decision to not raise rates in its September meeting could be viewed as positive for metal prices, the reason for not doing so could be viewed as equally bearish. Board members do not feel confident enough in the economy to raise rates at this time. This suggests that inflation could be tame for the foreseeable future, however, the long-term inflation outlook starts to come into play the longer the Fed keeps kicking the can down the road,” according to Options Express.

Demand for gold in China is faltering and there is concern India will not be able to pick up the slack.

According to the World Gold Council, India imported 891.5 tons of gold last year while demand was 811.1 metric tons. The council believes consumption will increase to between 900 tons and 1,000 tons this year. [India Unlikely to Stem Gold’s Decline]

“Turning to the chart, we see the December Gold contract trading in a tightening range between the low 1100s and the 1150s. A breakout out of this range may signal a near-term direction for prices. Currently, the oscillators are sitting at neutral levels,” notes Options Express.

SPDR Gold Shares

Tom Lydon’s clients own shares of GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.