ETF Trends
ETF Trends

Gold bullion and miners are shining in the new year, with a popular gold miner exchange traded fund testing its resistance at the long-term trend line.

The widely observed Market Vectors Gold Miners ETF (NYSEArca: GDX) has increased 21.4% year-to-date and is testing its resistance at the 200-day simple moving average. If gold miners are able to break above the resistance, it would suggest a long-term shift in trend, or a potentially extended rally in gold producers.

Meanwhile, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) were 7.4% higher so far this year as Comex gold futures now hover around $1,234.8 per ounce, or near the highest level in almost two-and-a-half months. The gold ETFs are already trading above their short-term 50-day simple moving averages and are about 2.6% shy of testing their long-term resistance.

Gold prices and related assets plunged on a shift to a risk-on environment and on an appreciating U.S. dollar in the wake of Donald Trump’s presidential election win as investors anticipated deregulation, tax cuts and increased fiscal spending to stimulate the economy, which would in turn cause the Federal Reserve to hike interest rates to obviate an overheating economy.

However, the Trump trade has been losing momentum giving renewed focus on those market segments that sold-off during the so-called “Trump bump.” Concerns over Trump’s fiscal stimulus policies and his administration’s friction with traditional allies supported bullish bets on gold.

Lingering concerns over Trump’s policies, coupled with overseas political risks from upcoming elections in European countries, may continue to support safe-haven plays in gold.

Any more struggles from the federal courts over Trump’s executive orders, notably his order on immigration, could also set precedence for further challenges to Trump’s orders down the road, which could further support gold as a safe-haven asset.

Moreover, uncertainty about the pace of rate increases may help purchases of of the metal as a short-term safe haven. Comments or lack of comments out of the Federal Reserve has caused some observers to anticipate the central bank will not raise interest rates three times in 2017, which Fed officials had previously promised in December if they thought it would be appropriate.

The lower-for-longer rate environment will dampen the outlook on the U.S. dollar and keep yields depressed, which may both benefit gold as a store of wealth. The USD-denominated gold bullion grows more expensive for foreign buyers when the dollar appreciates, and the non-yielding gold hard asset is less attractive to other fixed-income assets in a rising rate environment.

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.