Tag Archives: gld

Is The Recovery Of GLD Underway?

Summary Shares of GLD have bounced back in the past couple of weeks. The recent depreciation of the U.S. dollar has helped pull up the price of GLD. Will the recent rally of GLD continue? Shares of the SPDR Gold Trust ETF (NYSEARCA: GLD ) have rallied in the past couple of weeks, following the disappointing non-farm payroll market and a weaker U.S. dollar. The gold market isn’t out of the woods just yet – even though some analysts already suggest the recovery of gold is underway – as the Fed is still on course to raise rates in the coming months, and the U.S. dollar may start to climb back up if future U.S. economic reports such as JOLTS and consumer sentiment show better-than-expected results. But for now, the gold market benefits from the current market conditions. The U.S. dollar isn’t picking up, for now The appreciation of the U.S. dollar during the first few months of 2015 came to halt. Although the gold market saw short-term gains during the first half of the year, it dropped between April and July. Since then, however, gold has remained relatively flat, as the U.S. dollar also remained relatively (compared to the beginning of the year) stable. (click to enlarge) (Source: FRED ) The hesitation of the FOMC in raising rates, and the lower-than-expected growth in non-farm payroll report helped pull up the price of GLD. The minutes of the last FOMC meeting also didn’t offer much input as to when the Fed plans to raise rates, or any new insight behind the Fed’s deliberations. But the main issue will remain the progress of the U.S. economy, including when it comes to inflation and labor. As for labor, the JOLTS report will be released this week, and may boost the U.S. dollar if it shows better-than-expected results. It may offset the adverse impact the NFP report had on the U.S. dollar. Nonetheless, the market isn’t convinced that the Fed is ready to raise rates. As of the end of the week, the implied probabilities of an October rate hike are below 10%, while in December, the odds are still nearly unchanged at 37%. And these odds suggest the market isn’t convinced that the Fed will raise rates. And in a recent interview, Federal Reserve Vice Chairman Stanley Fischer opened the door for a scenario in which the Fed may opt out from raising rates this year, as opposed to repeated claims that the Fed, including Chair Yellen , aims to raise rates this year. He stated that a rate hike is expected, but isn’t a commitment. As long as the Fed isn’t raising rates, the U.S. dollar may remain flat or even decline against other currencies, which will keep fueling the rally of GLD. But GLD isn’t the only way people invest in the yellow metal – some also consider buying coins. And the demand for coins seems to have gone up in previous months. Higher demand for coins? The U.S. mint experienced a rise in gold coin sales back in July-September. Since then, however, sales have gone down and are at among the lowest levels for this year, as presented in the following chart. (Data Source: U.S. Mint ) This is only a signal as to the changes in the physical demand for gold for investment purposes in the U.S. So far, the slow fall in gold prices in the past few months may have fueled a rise in demand for gold during the summer. I have pointed out in a previous article that total demand for gold declined in the second quarter. So even though this recent finding may signal (albeit it should be taken with a grain of salt, considering it’s not a complete account of the changes in the demand for gold coins on a global level – less than 10%) a modest gain in demand for coins during the third quarter, it’s still too early to determine if this means the gold market is tightening, and how this could affect the price of gold in general and GLD in particular. Final note The recent rally in GLD may not last long, especially if the U.S. reports including JOLTS and consumer sentiment show promising results. If not, the recent rally of GLD is likely to continue until other central banks boost their QE programs (ECB or BOJ), which will drive up the U.S. dollar, or until the Fed starts to drop stronger hints as to timing of the historic rate hike, which seems less likely to occur this year. As long as the Fed keeps pushing the rate hike to a later date, the price of GLD will keep seeing modest relief. For more please see: ” Gold and Inflation ”

Is The Fed’s Policy Meeting Important For GLD?

Summary This week the highly anticipated FOMC meeting will take place. The market still places a low chance of a rate hike. But the meeting isn’t just about will they raise rates this time? Will the FOMC move the price of GLD? This week the highly anticipated FOMC meeting will take place, in which the Fed will decide whether to raise rates or not. Currently, the implied probabilities for a September rate hike are slim – the market gives this possibility a 23% chance. For investors of the SPDR Gold Trust ETF (NYSEARCA: GLD ) will this rate decision move the price of GLD? How important is a rate hike at this stage for precious metals? It should matter, shouldn’t it? A rate hike should have some implications of the price of GLD: after all higher rates should translate to an increase in long term treasury yields, which should adversely impact gold prices. I talked about the relation between GLD and long term yields at great lengthen in previous posts . (click to enlarge) Source: U.S Department of Treasury and Bloomberg But as you can see, the medium term treasury yields, and the same goes for long term yields, after yields started to pick up at the beginning of the year, they have resumed their slow descent. Currently, yields aren’t far off their levels from the beginning of the year. The correlation between GLD and 5-year yields isn’t too strong at -0.24. This relation used to be much stronger in the past. It seems, for now, the relation may have weakened. Usually, the rise in the risk factor and economic uncertainty tends to pressure down long term yields and pull up GLD price. But this wasn’t the case for GLD this year. And if the FOMC raises rates, it could slightly raise interest rates, which should also lead to a modest decline in GLD. The U.S. dollar should also strengthen, a move that could also bring down GLD prices. Finally, as the Fed changes its policy, which in effect it has already heavily prepared us for, the “fear factor” of some bullion investors over a possible rate hike is likely to subside – a shift that could also reduce the demand for bullion investments including GLD. This FOMC meeting, however, isn’t likely to make long term waves. Yes, it could lead to some short term volatility, because some people still think a rate hike is still on the table. And if the Fed does push the button, it could raise market volatility in the following days. In such outcome, the price of GLD is likely to suffer even if it’s only for a few days. But for the more likely scenario – no rate hike, only a promise for hikes in the near term – the price of GLD could actually slightly rise, even if for a short term. More than just the statement This meeting also includes an update to economic data, a press conference – if we don’t get a rate hike, Chair Yellen will promise us a rate hike is right around the corner and is “data dependent” – and the dot plot. (click to enlarge) Source: FOMC As you can see, the Fed’s medium cash rate has declined over the past year, while the rates for 2016-2017 increased in the past meeting. If we don’t see a rate hike this time, the dot plot will likely show a decline in the medium rate for this year, a perhaps a rise for 2016. This shifts in the dot plots could also impact the markets as it will provide the outlook of FOMC members’ vis-à-vis the direction of the cash fund. I think, as I pointed out in the past , the current market conditions are less in favor for a rate hike at this point in time. If the Fed doesn’t raises rates, we could see a short term bounce in the price of GLD. But as long as the Fed is on course to raise rates in the coming months, GLD is still likely to suffer. For more please see: ” Gold and Inflation – Is there is relation? ” Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Direxion Daily Gold Miners Bull 3x Shares ETF – Gold Suffers From Weak U.S. Job Numbers

The Direxion Daily Gold Miners Bull 3x Shares ETF (NYSEARCA: NUGT ) and other gold ETFs have had a tough session this week as the yellow metal settles at a one-week low in yesterday’s session. Gold for December delivery fell $9.10, or 0.8%, to settle at $1,124.50 per ounce on Comex yesterday. The loss marked the seventh loss for the yellow metal in nine trading sessions, and it brought the bullion to its lowest settlement since Aug. 27. Yesterday’s loss was due to fears ahead of key economic data in the U.S. (for employment numbers) and from Europe about the ECB’s position on monetary policy. It turns out that those fears are justified as the weak jobs number and dovish signals from the ECB suggests. The two factors are already forcing the downward pressure on gold and the gold ETFs are feeling the hit. As of 12:10 p.m. ET, NUGT was down 5.50% to $2.66. Weak Jobs Number Weakens Gold The Labor Department reported that the U.S. economy saw the lowest job gains in the last five months in August. In August, U.S. employers added 173,000 new jobs and the unemployment rate fell to 5.1%. The job gain was better that the economists’ estimates but it still small in comparison the job gains from April through July. The drop in unemployment rate to 5.1% marks the lowest level since April 2008. Analysts believe that the weak job numbers will increase the odds that the fed will raise interest rates this month. Andrew Grantham, economist at CIBC World Markets notes “We’re a little closer to it being game on rather than game over for a September rate hike.” Carl Tannenbaum, chief economist at Northern Trust Co. notes that “Unfortunately, this number while good is neither so strong as to make clear the need for a rate hike nor so weak that it makes standing pat a clear option.” Brian Bethune, an economist at Tufts University says the fed will want to act now as economy enters slow mode. In his words, “the bottom line is the Fed is just going to sit here.” Rate Hike More Likely Than Ever From the above, it is obvious that analysts agree that a September rate hike is in the works. The fed will be meeting on Sept. 16 to 17 and it seems that they will most likely agree on a rate hike. Fed Vice Chairman, Stanley Fischer has been vocal about the need to raise interest rates this month. An increase in interest rates will put gold and its ETFs such as NUGT at a disadvantage in relation to interest-yielding assets. In the next two weeks, the market will have a clue on the feds position about raising interest rates; in the meantime, the volatility in the price of the bullion is here to stay. Original Post Share this article with a colleague