Recent declines for gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), may not appear alarming, but some technical analysts believe the yellow metal has reached an important technical area.
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.
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.
“Visibly, there was an attempt lately to break above a long term falling channel (see purple circle). If that breakout is confirmed, it would be bearish for gold. The opposite is true as well: if the ratio moves lower, to the lower area of the channel, it would be very bullish for gold. Right now, there is a bear market test ongoing,” according to ETF Daily News.
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.
“From a different perspective, the gold to silver price ratio provides another viewpoint to assess the bullish or bearish trend in the gold market. Silver tends to move stronger in any trending direction: silver rallies sharper in a gold bull market, but it also falls sharper in a bear market,” reports ETF Daily News.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.