The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold-backed exchange traded products have been solid performers in 2017. Year-to-date gains of nearly 10% confirm as much.
Some of that bullishness could extend into early 2018 as January is often one of the best months of the year in which to be long in the yellow metal.
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. Interest rates remain low in many developed markets and some emerging markets have been rapidly lowering borrowing costs this year.
“The shares of GLD recently broke support in the $120 area, but found an ally around $117.50, which represents a 50% Fibonacci retracement of the ETF’s rally from its November 2016 lows to its September highs. The fund is now on pace for its fourth straight gain, though, and is trading back atop $120 — a 38.2% Fibonacci retracement of the aforementioned rally, and representing a 10% year-to-date gain for the shares,” according to Schaeffer’s Investment Research.
Since the 1970s, gold has returned an average 10% per year, comparable to the S&P 500 average price performance. Over the past 10 to 20 years, gold has also held up, supported by important structural changes in the market, like the economic expansion of emerging markets, increased use of gold as part of foreign reserves by central banks and the rising popularity of gold-backed ETFs.