ETF Trends
ETF Trends

The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) confronted challenges to end 2016, but have been solid performers to start the new year. For example, the big physically-backed gold ETFs are higher by more than 3% over the past week.

However, data suggest some professional traders are not convinced by gold’s modest bullishness to start 2017.

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.

In the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates as many as three times this year, gold prices could move modestly higher with some help from emerging markets, namely China and India.

“Gold is up $60 an ounce since hitting post-US election lows of $1,124 mid-December, but remains down just over $150 from an initial but brief surge on election night as results showed a likely victory for Trump in the presidential race,” reports Frik Els for Mining.com. “According to a survey by Bloomberg released on Friday, gold traders are the most bullish in over a year predicting strong gains in 2017 following a 8.7% rise of the course of 2016.”

“In December, $2.27 billion was pulled out of SPDR Gold Shares, the world’s largest exchange-traded fund backed by the metal. That was a third straight monthly loss and the biggest since May 2013. Money managers have also turned less bullish on bullion, cutting their net-long positions for a seventh straight week to the smallest since February, U.S. government data showed Friday,” reports Luzi-Ann Javier for Bloomberg.

“Large scale speculators began to cut back on bullish bets as far back as September and the latest weekly data from the CFTC  show net longs down to fewer than 3.6 million ounces, 88% below the July record. It’s the most bearish net positioning since January 2016 and has been accompanied by a significant increase in gross shorts – bets that gold could be bought back cheaper in future – which have more than doubled since the Trump victory to a one-year high,” according to Mining.com.

Since the start of 2017, investors have yanked $634 million from GLD, the largest gold ETF.

For more information on the gold market, visit our gold category.

Tom Lydon’s clients own shares of GLD.