- GLD is up nearly 19% year-to-date and ranking as this year’s top asset-gathering ETF
- Bullion’s bounce has not convinced all market observers that a sustained rally is in store
- Precious metals — and gold, in particular — typically have lower correlations to the stock and bond markets than many other commodities, such as oil
With the SPDR Gold Shares (NYSEArca: GLD), the world’s largest physically-backed gold exchange traded fund, up nearly 19% year-to-date and ranking as this year’s top asset-gathering ETF, perhaps it is not surprising that there is a growing chorus of naysayers claiming that now is the time to sell gold and gold ETFs.
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. Negative interest rates throughout the developed world are also seen as a catalyst for gold upside.
However, that issue was quelled a bit Wednesday when the Fed, as expected, did not raise interest rates. More importantly, it looks as though the central bank will only raise rates, at the most, twice this year. Heading into 2016, many market observers expected four rate hikes, which could have been damaging to gold’s potential upside.
Still, gold critics are advocating selling the yellow metal here simply because of the intensity of the yellow metal’s rally in a short time frame.
“One doesn’t need to be a technical trader to fear that another great gold unwind is right around the corner. Gold has a history of being an all-or-nothing trade. And if you think the $7.5 billion in gold ETFs have nabbed this year is a sign that the trade has to take a turn for the worse, consider 2011,” according to CNBC.
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.
However, the sell gold now thesis ignores the facts that the yellow metal is well off its highs set several years and that gold entered 2016 locked in a three-year long bear market. Less than three months of rallying this year does not erase those facts.
“Precious metals — and gold, in particular — typically have lower correlations to the stock and bond markets than many other commodities, such as oil. Part of the reason is that supply-and-demand characteristics for gold are different,” adds CNBC.
SPDR Gold Shares
Tom Lydon’s clients own shares of GLD.