Gold ETFs Glitter

 

Chart of Gold-Based ETFs - 6-Month Performance - GDX Gold Miners ETF and GLD Gold Shares ETF

 

Chart of Gold-Based ETFs – 6-Month Performance – GDX Gold Miners ETF and GLD Gold Shares ETF – Source: TheTechnicals.com and TradingView

If you haven’t noticed already, stocks haven’t been the only market to rally in the past couple of months. Gold has been on a strong resurgence since the mid-August lows of last year. Back then, the price of gold bottomed around $1160 before embarking on a sustained rally for the past six months. As of Tuesday afternoon (2/19/2019), gold hit a high around $1341, which represents more than a 15% rise from the lows. On Tuesday alone, price surged more than 1%. This has boosted both the GLD ETF, which holds physical gold, as well as the fortunes of gold miners as represented by the GDX ETF. In short, we’ve seen gold ETFs glitter like we haven’t seen in a while.

Why Gold Has Been Surging

There are a couple of factors helping to boost the price of gold. One of these factors is falling interest rates and bond yields, as shown in the U.S. Treasury’s plunging 10-year yield since November. When interest rates fall, non-interest-bearing gold has less competition from interest-bearing instruments. As a result, gold prices and demand for gold tend to rise.

Also, since gold is most often denominated in U.S. dollars, gold and the dollar are generally inversely correlated. As a result, when the dollar drops in value, gold prices tend to rise, and vice versa. The price of the U.S. dollar index as of Tuesday is right around where it was in mid-August of last year. Though there was a lot of fluctuation in the interim, the dollar has remained relatively strong throughout. So gold strength can hardly be attributed to any weakness in the dollar.

Finally, gold is considered a safe-haven asset, which means that investors tend to buy gold when they are concerned or fearful about global political and economic conditions. Judging by the positive trajectory of the stock market, though, it doesn’t seem that investors are too worried. However, there are still serious risk conditions on the horizon. This includes the ongoing uncertainty of U.S.-China trade talks. Related to this, fears of a slowing global economy continue to weigh. Finally, there’s that thorny issue of Brexit. In the next several weeks, the world is bracing for Brexit-related developments that could make massive waves in the U.K., all of Europe, and beyond.

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Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose ...

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Alexander Straub 7 months ago Member's comment

"This has boosted both the GLD ETF, which holds physical gold"

Bart Johansen, would you be able to provide any verifiable evidence outside of GLD's holding reports to support this claim? I've long found GLD's holding reports to be questionable at best. GLD makes the claim that it is completely supported by physical gold yet it denies your every day investors the right to exchange for any of their listed 'gold'. This alone means GLD shares are just paper by the day's end.

Moreover, GLD's prospectus is loaded with weasel clauses that lets the trust get away without the promised gold backing. A good example of this is in the section of the prospectus that states GLD has no right to audit subcustodial gold possessions. I have never heard of any justifiable reason explaining why this audit loophole exists. CNBC's Bob Pisani also made a highly publicized visit to GLD's gold vault in a segment called Gold Rush: The Mother Lode. GLD's administration organized this visit to show that GLD's gold actually exists. However, the gold bar held up by Mr. Pisani showed a serial number of ZJ6752 which did not show up on the latest bar list during that time. It was later found that this "GLD" bar actually belonged to ETF Securities.