Although the naysayers have grown louder during gold’s ascent, it cannot be refuted that the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) are sporting year-to-date gains of close to 18% and have been, particularly in GLD’s case, packing on new assets.
The World Gold Council also recently revealed that investment gold sales in mainland China, which consumes a fifth of the global gold supply, were up 25% in the fourth quarter of 2015 year-over-year while jewelry sales were down 1%.
With government bonds depressed due to the negative yield environment, fixed-income assets would be less effective at hedging market risks and may appear overbought in some areas – about 30% of high quality sovereign debt, or over $8 trillion, is trading with a negative yield and almost an additional 40% with yields below 1%, according to the World Gold Council.
“On a short-term trading timeframe, the Gold ETF (GLD) appears to be reaching short-term overbought trading levels as it heads into previous resistance at the 122 level. For reference, see its Relative Strength Index (RSI) in chart below. This appears to be a reasonable short-term short candidate, right?,” according to See It Market.
Goldbugs should listen up because technicians see more good news coming from gold charts.
Todd Gordon said in an interview with CNBC “that gold prices surged more than 20 percent from the start of 2016 to the year-to-date high last month, but as equities inch closer to all-time highs, the momentum in the safe haven asset has stalled.”
Gold momentum has dragged silver to the point that the iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR) are now outpacing the aforementioned gold ETFs on a year-to-date basis.
Industrial demand for silver dipped 0.5% last year on lower demand from Europe and North America. On the other hand, gold has been buoyed this year by accomodative interest policies throughout the developed world. That includes the Federal Reserve, which has been reluctant to raise interest rates with few traders betting that is going to happen at the Fed’s April meeting.
Still, the gold/silver ratio is worth listening to and some market observers believe the ratio is sounding a potentially ominous tone for other assets.
“One might argue that the gold-silver ratio could go up, but the point is that the correlation is already at an extreme. If the two assets close the gap and return to normal, deflation could increase dramatically,” according to Hard Assets Alliance.
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Tom Lydon’s clients own shares of GLD.