The SPDR Gold Shares (NYSEArca: GLD), SPDR Gold MiniShares (NYSEArca: GLDM) and other bullion-backed exchange traded products recently showed some signs of life, but gold ETFs need to close higher in May or risk extending the monthly losing streak to four months.
“At Friday’s close of $120.65, GLD was down 0.5% on a month-to-date basis. It’s still early innings, but another negative return in May would mark GLD’s fourth monthly loss in a row — its longest losing streak since the six-month slump that kicked off last April,” according to Schaeffer’s Investment Research.
Boosting the case for gold is that the Federal Reserve recently alluded to no more rate hikes for the rest of 2019 after initially forecasting two. The capital markets initially expected rates to remain steady after the central bank spoke in more dovish tones following the fourth and final rate hike for 2018 last December.
Demand Trends for Gold
While the first quarter of 2018 saw demand at just 984.2t, a 3-year low for the precious metal, gold demand in 2018 reached 4,345.1t, up from 4,159.9t in 2017 and in line with the five-year average of 4,347.5t.
Most of this growth was driven by substantial buying on the part of the central bank. Nine Central banks actively purchased gold bullion. Central bank net purchases totaled 145.5t in the first quarter of 2019, which was the strongest first quarter since 2013 (179.1t).
A factor for gold investors to consider is seasonality, meaning this time of year is usually unkind to the yellow metal.
“From a seasonality perspective, the odds are stacked against GLD. Over the past decade, GLD has closed the month of May on positive ground only 30% of the time, and its average return for the month is a decline of 1.10%,” reports Schaeffer’s. “Based on April’s close, another ‘average’ May for GLD would place the shares around $119.87 by month’s end — which would mark its first monthly close below $120 since last November, incidentally.”
Data suggest options traders are wagering on more declines for GLD.
“Which makes it more interesting still that options players seem downright unenthused about the upside prospects for GLD. Total call open interest of 1.47 million contracts registers in the low 22nd annual percentile, while comparable put open interest of 888,7444 contracts arrives in the much more robust 73rd percentile of its 52-week range (per Trade-Alert),” according to Schaeffer’s.
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