Much has been made of the recent declines experienced by the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products.
To be sure, a 5% drop over the past month is not attractive, but that repudiation could also be a sign that gold is oversold and with the yellow metal holding around some key technical levels, it could be ready to bounce.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. Speculation that the Federal Reserve will raise interest rates in December has been a primary catalyst behind the yellow metal’s recent dip.
Related: Demand Supports Gold ETFs
Looking ahead, the ongoing negative interest rate environment, with European and Japanese central banks cutting benchmark rates deeper into the red to promote growth, could push investors toward gold bullion as a more stable store of wealth.
“The main driver for the dollar is the demise of the other currencies regardless of the Feds inactivity. It would also appear that the stock markets are topping out at the moment so the alternative may be a move to cash, so we could be in a situation where gold and dollar go up in unison,” reports Mining.com.
[related_stories]Investment in gold jumped to 448 metric tons in the second quarter, or more than double the figure of the same period year-over-year, largely due to a year-over-year increase in ETF investment to 236.8 metric tons, compared to a 23 metric ton outflow the year prior.
The World Gold Council expects jewelry demand to increase in the second half of the year, notably in areas like India where key festivals and fourth-quarter holiday season in the West, could provide further support.
SEE MORE: Let the Good Times Roll for Gold Miners ETFs
“This current level of around $1250.00/oz plus is near enough to a bottom to render the downside risk limited. The same goes for the gold and silver miners as the chart below shows the Gold Bugs Index (HUI) has retraced some of its steps from the 285 level back to the 198 level and is currently standing at 217. It should be noted that the HUI is still some 66.5% off its high (630-217) made in 2011 so there is a lot of ground to made up,” according to Mining.com.
For more information on gold, visit our gold category.
SPDR Gold Shares (NYSEArca: GLD)
