The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold exchange traded products are coming off dismal second-quarter performances, but some data points suggest the yellow metal could be primed for better things in the third quarter.
Conversely, the look for gold among professional traders lacks appeal.
“Hedge funds and large-scale speculators active on the derivatives market seemed to have lost confidence in gold’s ability to move higher and last week all but abandoned their bullish positions, cutting longs – bets on a higher gold price – by 82%,” reports Frik Els for Mining.com.
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.
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Gold Hurdles Ahead
“According to the CFTC’s weekly Commitment of Traders data up to 26 June released on Friday speculators now have a net long positions of just 4,186 lots or 13 tonnes after adding significantly to short positions – bets that gold could be bought back at a lower price in the future,” reports Mining.com.
GLD is the largest physically backed gold ETF on the market, providing investors exposure to gold price movement in an easy-to-use investment vehicle. The ETF is backed by physical gold bars stored in London vaults. The gold trust currently holds about 27.2 million ounces of gold, so each SDPR Gold Shares represents fractional ownership of the underlying gold.
“Bullish positioning is now at levels last seen at the end of 2015 when gold briefly dipped below $1,050 after the market went into a net short position for only the second time since 2006, when government first started to collect the data,” according to Mining.com
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. Still, GLD and rival funds need to fight through some resistance to renew traders’ confidence.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.