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 solid performers last week as each of those ETFs posted gains of about 1%.
Some technical analysts believe the yellow metal could be nearing an important technical breakout. GLD, the world’s largest gold ETF, is now higher by more than 10% year-to-date. 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.
Rising inflation could also prove to be a catalyst for gold ETFs. By some metrics, the Fed has under-estimated U.S. inflation, which could prove beneficial to gold because the yellow metal is historically a popular inflation fighter.
“Many investors are aware of the US Dollar’s impact on the price of gold. In particular, it has been the US Dollar’s strength that has kept the yellow metal at bay for the past several years. Could this be changing?,” according to ETF Daily News. “When the dollar is weaker than gold, the ratio heads lower… and is bullish for gold (see green line). When the US Dollar is stronger than Gold, the ratio heads higher… and is bearish for gold.”
Still, gold needs some demand catalysts, something global central banks did not provide in the first quarter.
“Central banks showed a diminished appetite for gold purchases; China’s purchasing programme was on pause during the quarter as its foreign exchange reserves remained under pressure. Sales, once again, were sparse,” notes the World Gold Council. “Although inflows were just one-third of the extraordinary levels seen in Q1 2016, demand was firm. European-listed products were the most popular, due to continued political uncertainty in the region.”
Indian demand is vital for gold because the country is the second-largest buyer of the yellow metal behind China. India, one of the world’s largest gold consumers, could be set to lower its import tax on bullion, which could be major catalyst for gold prices. Still, emerging market demand for gold has not picked up yet. For instance, China has shown little demand, with the Shanghai Gold Exchange seeing little growth in volume.
“Gold bulls do not want to see this ratio find support at, as this rising support line has rough on metals space for 6-years. If a rally takes place at, it will continue to be hard sledding for metals,” notes ETF Daily News.
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Tom Lydon’s clients own shares of GLD.