Physically backed gold-related ETFs, such as the SPDR Gold Shares (NYSEArca: GLD), have drifted lower over the past month amid increased appetite for riskier assets, but there are still some catalysts that could power gold funds through the end of 2017.
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.
India, one of the world’s largest gold consumers, could provide a near-term spark for the yellow metal.
“India’s gold imports in September rose 31 percent from a year ago as jewellers increased their purchases ahead of a festival at the end of the month, provisional data from GFMS showed,” reports Reuters. “Higher purchases by India, the world’s second-biggest consumer, could lend support to global prices that are trading near their highest level in a week. The higher imports may also widen the South Asian country’s trade deficit.”
Investor demand still remains an integral part of the gold equation, too. Moreover, in the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates over the mid- and long-term, gold prices could still move modestly higher with some help from increased demand out of the emerging markets, namely China and India.
Related: Enthusiasm Remains for Gold ETFs
India’s “imports were 48 tonnes in September, Sudheesh Nambiath, a senior analyst with GFMS, a division of Thomson Reuters, said on Tuesday,” according to Reuters. “Much of the gain last month was simply due to the Indian holiday of Dussehra being celebrated on Sept. 30, rather than in October last year, as the holiday shifts since it is based on a lunar calendar. Gold buying during Dussehra is considered auspicious.”
Investors added nearly $664 million to GLD in the third quarter. To start the fourth quarter, has lost $425.1 million, but the ETF has gained $1.5 billion in new assets this year.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.