With global equity markets volatile to start 2016, investors are searching for safe-haven investments, a scenario that is proving to be a boon for gold-related exchange traded products.
ETFs such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) tumbled last year as gold extended its bear market into a third consecutive years. However, those ETFs and others are climbing in 2016 and investors are renewing gold’s status as a safe-haven investment.
Gold futures and physically-backed ETFs were pressured last 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. Making matters worse for gold ETFs are expectations for soft near-term demand at a time of year when gold demand is usually strong. [Doubters in Gold Rally]
However, volatile global equity markets are prompting investors to change their tunes about gold ETFs early in 2016.
“Gold’s solid opening has seen investors jump back into gold for the first time in several months says Hansen with more than $2 billion or roughly 57 tonnes flowing into physical gold-backed gold ETFs since the start of the year compared to 83 tonnes during January 2014. Around 140 tonnes left global gold ETFs over the course of 2015,” reports Frik Els for Mining.com.
Some options traders appear comfortable betting that GLD has more near-term upside in store.
“On Tuesday, when gold gained more than 1 percent, one trader spent more than $13 million on a bet that the SPDR Gold ETF, the GLD, would rise to levels not seen since May 2015 in the next two months. Specifically, that trader purchased 75,000 of the March 108/117 call spreads for $1.80 each. Since each options contract accounts for 100 shares of stock, this is a $13.5 million bet that the GLD will rise more than 9 percent by March expiration,” reports CNBC.
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.
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.