The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold exchange traded products have surprisingly fallen on hard times following the U.S. presidential election earlier this month.
For example, GLD and other physically-backed gold ETFs are off more than 4% in November. Now, the yellow metal and the aforementioned ETFs turn their attention to Federal Reserve’s December meeting, which is widely expected to deliver the central bank’s first interest rate increase of 2016.
Related: Demand Supports Gold ETFs
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.
Global central bankers’ ever-looser monetary policies and increased uncertainties helped drive investment demand for gold bullion and related exchange traded funds to record highs for the first six months of the year.
“Fed Fund futures have priced in a 100% chance of a rate hike of between 25 and 75 basis points in December. Many market observers are expecting the FOMC to step up the pace of rate increases in 2017, but some Fed Funds traders only see rates increasing between 75 and 150 basis points by September of next year,” according to Options Express.
Total gold demand, which includes usage in jewelry manufacturing and the industrial sector, for the first half was 2,335 metric tons, the second highest on record.
There are avenues for those looking to profit from more downside in gold. For instance, the ProShares UltraShort Gold (NYSEArca: GLL) provides a two times inverse or -200% daily performance of gold bullion.
Alternatively, ETN options include the DB Gold Double Short ETN (NYSEArca: DZZ), which tries to generate the twice inverse or -200% return of the daily performance of gold; DB Gold Short ETN (NYSEArca: DGZ), which tries to reflect the inverse of gold price movements; and VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD), which tries to reflect the performance of three times the inverse or -300% daily performance.
“Turning to the chart, we see the December Gold contract trading below near-term support around the 1215 level over the past three trading sessions. However, this is not a convincing breakout of support, so traders may be looking for a more decisive breakout,” notes Options Express.
For more information on the gold market, visit our gold category.
SPDR Gold Shares
Tom Lydon’s clients own shares of GLD.