Gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU), are tumbling. Year-to-date losses for those physically-backed gold products and rival funds are in excess of 6%, but some market observers believe the yellow metal’s slide is a buying opportunity.
The strengthening U.S. economy is translating to a stronger dollar, which is often a problem for gold. Gold, like other commodities, is denominated in dollars, meaning it has an inverse relationship to the U.S. currency. Still, there are compelling long-term catalysts for gold.
“But this bloodbath is leading to a buying opportunity. The biggest reason for that lies in ‘commitment of traders’ data, which details open interest on futures and options on futures markets each week,” reports CNBC.
Buying The Gold Dip
Some gold market observers believe the yellow can firm up and trend higher next year as the dollar retreats. At least one gold bull believes bullion could return to $1,400 for the first time since 2013. The current environment, characterized by economic growth and heightened inflation expectations, provides an ideal backdrop for investors to consider the benefits of real assets.
“According to the CFTC’s CoT data, managed money short positions have outweighed long positions for four weeks now, amounting to a near-record short position,” according to CNBC. “Traditionally, it’s the opposite; gold sits in a net long position, meaning managed money longs outnumber shorts. We’ve only seen this kind of pattern twice, and both times, gold has rallied.”