Despite a rough day for riskier assets Monday, the SPDR Gold Shares (NYSEArca: GLD) tumbled 1.3%. The world’s largest bullion-backed exchange traded fund is off 4.5% over the past three months, extending its multi-year bear market.
Bearish forecasts continue mounting against the yellow metal, confirming that gold is still in a lengthy bear market, giving some traders pause about how much more near-term upside the yellow metal has in store. [Doubters in Gold Rally]
Gold futures and physically-backed ETFs have been pressure this year amid speculation the Federal Reserve is preparing to raise interest rates, which has pushed the dollar higher. Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets.
Even if rates rose a couple basis points, the continued low rate environment is good for gold, which does not pay a yield and would struggle to compete with yield-generating assets when rates rise.
“I think there’s still downside here,” Rich Ross said Monday on CNBC’s “Trading Nation.” Gold prices got a bid last week on the heels of a surprise stimulus package from European Central Bank President Mario Draghi as well as a strong jobs number on Friday. “However, we’ve seen those trends reverse, and I think ultimately gold is going to wilt over that pressure.” Gold closed Monday’s session down 1 percent.”
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.
Now, more evidence is emerging that gold demand is expected to remain tepid in the near-term.
“India’s gold buying in the key December quarter is likely to fall to the lowest level in eight years, hurt by poor investment demand and back-to-back droughts that have slashed earnings for the country’s millions of farmers,” reports Reuters.
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]
“Looking at a chart of the GLD, the benchmark gold ETF, Ross explained why he thinks the technicals are setting up for a move below $100, which corresponds with $1,000 in the commodity price,” according to CNBC.
SPDR Gold Shares
Tom Lydon’s clients own shares of GLD.