Until recently, 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 had been struggling, but with bullion now trading at multi-month highs, some market observers believe a technical bottom is in gold.
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. [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.
“There is still plenty of overhead resistance in its way, so this is far from a major breakout. But something is better than nothing after such a long period of weakness. And the move is confirmed by silver, which offers a similar chart,” reports Michael Kahn for Barron’s.
The iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR) have struggled this year thanks to the stronger dollar and speculation the Federal Reserve will soon increase interest rates.
Silver is used in many industrial applications, but industrial demand is diminishing as global growth, notably China, begins to slow. Industrial demand for silver dipped 0.5% last year on lower demand from Europe and North America.
“Again, there are many bullish signs popping up in gold, silver and mining stocks. None will convince the trend-following crowd to change camps from bear to bull, but somebody is already stepping up to buy. The volume in the gold mining ETF has been exceptionally heavy since July,” according to Barron’s.
GLD is up more than 3% over the past 90 days.
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.