Last week, gold exchange traded funds such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) each rose nearly 5% in a jump that some market observers attribute to short covering.
Some options traders appear comfortable betting that GLD has more near-term upside in store. Investors pulled $2.2 billion from GLD, the world’s largest bullion-backed ETF last year, after pulling $3.2 billion from the fund in 2014. To start 2016, the trend of gold ETF outflows is abating as investors have poured more than $956 million into GLD.
“If the gold price could build a base around current levels above $1,100, the market should remain in an uptrend for several weeks,” according to Mining.com.
Options traders have also been cozying up to various gold-related ETFs. On Monday, unusual bullish options activity was spotted in the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT). “optionMONSTER’s Heat Seeker monitoring system detected the purchase of 2,200 March 30 calls for $3.70 in less than a minute this morning. Volume surpassed open interest of 1,444 contracts, an indication new money was put to work,” optionMONSTER reported of NUGT.
However, bullion’s bounce has not convinced all market observers that a sustained rally is in store. Although precious metals ETFs have recently displayed some strength, 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.
David Seaburg, head of equity sales trading at Cowen and Co. told CNBC, “”You’re going to have an opportunity here, maybe for the next month or two, to make some money here near term on the upside” for metals, and to the downside for the dollar.”
Gold has been in a 3-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.
A potential problem for gold this year is that some market observers believe the Fed charting a course for more rate hikes, though at a measured pace, in 2016 sets the stage for further upside in the U.S. dollar. Of course, that would be punishing for gold and other commodities, which are denominated in dollars.
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.