For example, 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 lost 1% or more on Thursday.
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.
Gold ETFs have also been grappling with the surprising results of last month’s U.S. presidential election. Investors widely expected gold to rally if Republican Donald Trump won the presidential election earlier this month, which he did, but that thesis proved incorrect. Democratic challenger Hillary Clinton may have actually been the preferred victor for gold ETFs because historical data suggest gold performs better when Democrats are in the White House.
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.
Other issues are weighing on gold, too.
“Gold supply and demand fundamentals have been shaky to say the least, with physical demand remaining soft, according to the World Gold Council. India and China, two of the largest Gold markets, have had weak demand, exacerbated by government action. In India, the government demonetized 500 and 1,000 rupee notes to fight corruption,” according to Options Express.
Meanwhile, uncertainty in Europe can also fuel demand in the region. Market observers are calling for a so-called hard Brexit. Elections next year in France, Germany and Holland could also see an increase in anti-establishment and populist parties.
“While the market has been in freefall since mid-November, the angle of the decline is gradually becoming less steep, suggesting prices could be set to consolidate or possibly hunting for a near-term bottom,” notes Options Express.
For more information on the gold market, visit our gold category.
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.