The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold exchange traded funds have traded lower over the past month as the U.S. dollar has gained momentum, highlighting the usually inverse relationship between commodities and the greenback.
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.
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 precious metal will start to rebound in the final quarter of this year to average $1,375 an ounce in the last three months of next year and could touch a high of $1,400, said Bart Melek, global head of commodity strategy at TD Securities in Toronto,” reports Bloomberg.
Interest Rates
Another issue for gold is that the Federal Reserve meets in June and is widely expected to boost interest rates at that meeting, which would likely be a negative for gold. Over the past several years, gold has often declined heading into Fed meetings when investors widely expected a rate increase.
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“The overall interest rate environment is expected to remain low as the Federal Reserve hikes another two or three times next year before ending its tightening cycle, said Melek by phone on May 31,” according to Bloomberg. “This, coupled with fully valued equities, geopolitical risks, and a downward trend in mine supply, will see increasing pressure to buy gold, he added.”
Melek said in the Bloomberg interview that he expects gold prices will average $1,290 an ounce in the third quarter and $1,300 per ounce in the fourth quarter.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.