For a good part of 2016, gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), were prolific asset gatherers, but that theme ebbed late in the year amid concerns about the Federal Reserve’s monetary policy.
Although many market participants still expect the U.S. central bank to boost borrowing costs multiple times this year, investors are renewing their affinity for gold ETFs early in 2017. 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. However, the dollar has recently retreated in noticeable fashion, helping aid gold’s ascent along the way.
“GLD has added 28 tonnes of gold so far in 2017 – most of it in February. It had been shedding gold up until late January,” according to a Seeking Alpha analysis. “After some 24 tonnes was sold out of the ETF in January there has been a huge reversal in the current month. Holdings had remained flat at 799.07 tonnes for the final four trading days in January, but since then GLD has added a massive 27.88 tonnes of gold to a total holding of a fraction under 827 tonnes signifying quite a turnaround in gold investor sentiment.”
Gold ETFs have also been grappling with the surprising results of the U.S. presidential election. Investors widely expected gold to rally if Republican Donald Trump won the presidential election in November, 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.
Still, it is hard to say Trump has not aided gold this year as uncertainty over his policies is seen as a primary catalyst behind GLD’s more than 7% gain this year. Markets hate uncertainty, but gold is one of the few assets that embraces it and that could be a good thing going forward.
“It seems unlikely that President Trump’s shoot-from-the-hip style of tweet first and refusal to backtrack afterwards will change in any meaningful way. Those who elected him would probably not want this to happen in any case, but it may take the rest of the world some time yet before it understands that conciliatory diplomacy does not seem to be the Trump style,” adds Seeking Alpha.
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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.