The SPDR Gold Shares (NYSEArca: GLD), the largest gold ETF, and competing gold ETFs tumbled Friday on the back of a surprisingly strong November jobs report, but that doesn’t mean these funds are about to turn bearish.
In fact, some commodities market observers believe the yellow metal can continue delivering solid showings in 2020. Even with Friday’s retreat, GLD remains higher by nearly 15% year-to-date as bullion has been one of 2019’s best-performing commodities.
“My analysis projects that gold will resume its rally in the coming weeks. Why? Because the gold stock indexes have been under powerful accumulation, and the dollar is getting closer to breaking down,” writes Andrew Addison for Barron’s.
Bullish On Bullion
Bullish gold traders didn’t get the news they wanted when the most recent Federal Reserve minutes revealed that more rate cuts may not be on the horizon, which could feed into lower gold prices. However, market experts feel that in the long run, gold prices will see increases.
“Another measure of strength is the advance/decline line of the NYSE Arca Gold Miners index. Even as the index declined from September through November, the a/d line broke out to the upside,” according to Barron’s.
Gold ETFs previously rallied amid increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive so that the money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
The SPDR Gold MiniShares (NYSEArca: GLDM), a low-cost alternative to GLD, has been benefiting from renewed gold enthusiasm this year, recently topping $1 billion in assets under management.
Investors rushing to GLD, GLDM and related ETFs as a quick and easy way to gain exposure to gold price movements as they hedge against market risks, help protect their purchasing power in times of inflationary pressures or capitalize on increasing demand from the emerging markets with a growing middle-income class.
“Meanwhile, the U.S. Dollar index is getting closer to rolling over. After breaking its uptrend from February 2018, the dollar’s trend would turn bearish with a weekly close below 96,” reports Barron’s.
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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.