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Gold ETFs Continue To Take One On The Chin As The US Dollar Climbs

December 22nd, 2009

take-one-on-the-chin“Every piece of economic data will continue to be scrutinized for clues as to whether the private sector is strong enough to cope without the support of the public sector. Third quarter GDP was released this morning showing that the economy expanded at a 2.2% pace versus the 2.8% gain previously reported by the U.S. Commerce Department. In addition to higher bond yields, increased inflation expectations are evident in the widening spread between the 10-year yield and the 10-year Treasury Inflation Protected Securities (TIPS) yield. Confidence is high that Chairman Bernanke and the Federal Reserve will be able to drain the excess reserves from the system and shrink the Fed’s $2.2 trillion balance sheet when the time is right. This growing confidence in the Fed, as well as in the sustainability of the current recovery, has led to the rise in the U.S. dollar and the corresponding decline in the gold price and gold mining stocks. The SPDR Gold Trust (GLD) is hovering at $106.50 after hitting a high print of $119.54 on December 3, while the Market Vectors Gold Mining ETF (GDX) has slid to $45.44 from its $55.40 print earlier this month losses of 10.9% and 17.9%, respectively,” Gold Alert Reports.

“This confidence in the Fed, as well as the growing consensus that the private sector will be strong enough to withstand the removal of public sector support, is crucial to a continuation of the rally in the dollar and the decline in the gold price. Should either of these pillars erode and the market perceives that further government funds and support are necessary to prevent a double-dip recession, then investors will likely return to gold-related investments as a store of value in a world of depreciating currencies,” Gold Alert Reports.

“With the finances of governments across the globe increasingly stretched due to expanding deficits and debts, the credit quality of sovereign debt is deteriorating. This is evident in the recent debt downgrades of Spain and Greece – and represents a dangerous trend heading into the New Year. Confidence in fiat currencies is inversely correlated to the gold price and should worries intensify over the credit quality of sovereign debt, then gold-related investments would stand to benefit,” Gold Alert Reports.


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Here are some details on the two gold ETF’s mentioned:

The investment (GDX) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.

TOP 10 HOLDINGS (GDX) ( 68.62% OF TOTAL ASSETS)  
 
Company Symbol % Assets
AGNICO EAGLE MINES (AEM) 5.05
ANGLOGOLD ASHANTI LT (AU) 5.66
BARRICK GOLD CP (ABX) 14.08
Buenaventura Mining Company Inc. ADR N/A 4.97
GOLD FIELDS LTD ADS (GFI) 4.45
GOLDCORP INC (GG) 11.41
KINROSS GOLD CP (KGC) 5.79
NEWMONT MIN CP (HLDG (NEM) 8.28
Randgold Resources Limited (GOLD) 4.44
YAMANA GOLD INC (AUY) 4.49

The investment (GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.

Chart for SPDR Gold Shares (GLD)

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NYSE:GDX, NYSE:GLD


 

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