With stocks and other riskier assets starting the new year in glum fashion, safe-haven assets should be catching a bid and that is indeed the case for gold and bullion-backed exchange traded funds.
Last year, theSPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) along with rival gold ETFs extended their bear markets into a third year as investors scampered out of commodities funds. Gold ETFs were universally seen as vulnerable to higher interest rates prior to the Federal Reserve moving forward with such a policy earlier last month.
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. [Doubters in Gold Rally]
Although market observers believe the Fed is likely to raise interest rates several times this year, global market tumult to start 2016 has bolstered the appeal of gold and improved the technical outlook for ETFs such as GLD.
“With equity markets tumbling, escalating tensions between a Saudi-led Sunni bloc against Iran, ongoing hostilities in Syria, North Korea testing what it claims to be a hydrogen bomb, the once precious yellow metal is looking perky,” said Brown Brothers Harriman in a note posted by Chris Dieterich of Barron’s. “If gold is carving out a bottom, then a retracement of the drop since the middle of October should be anticipated. The 38.2% retracement is found near $1101, which is near the mid-November high. The 50% retracement is $1119. The 61.8% retracement dovetails with the double bottom objective. It is found near $1136.”