Public Sentiment Is Key For Eyeing The Bubble In The Gold ETF (NYSE:GLD)
The latest and most flaccid argument against Gold is the idea that the increase in advertisements for buying and selling Gold are an indication of a crowded market or public involvement. As I explained in an editorial last year, sentiment follows the trend most of the time. As a bull market matures, more and more people come onboard. Sentiment has to be bullish for a bull market to persist and this is most true in the later stages when the crowd arrives.
One of the reasons the gold bull market has far more time and room to run is that people have bubble fatigue. With numerous bubbles blowing up in the last ten years, Wall St and the public are quick to declare anything a bubble despite their inability to understand and analyze sentiment. Hence, we hear asinine concerns about too many advertisements. Tell me; are bonds in a bubble only because Pimco is advertised around the clock on CNBC?
Unlike these armchair analysts, we use a handful of sentiment indicators that are far more reliable and actionable.
Sentimentrader.com’s public opinion is simple but effective. It shows what percent of the public is bullish. Their data shows that the public was actually more bullish on Gold from 2005-2008 as public opinion spent a fair amount of time in the range of 75% to 90% bulls. In the last 24 months public opinion has yet to surpass 75% bulls.
COT data is another way to gauge sentiment. Did you know that open interest is about the same as where it was at the 2008 peak? Gold has climbed nearly 25% yet open interest hasn’t accelerated the way it did in late 2007.
We also track put-call data from the International Securities Exchange. Below is an updated chart of GLD’s put-call. As you can see, it has been quite reliable.
Why do we focus so much on sentiment? Sentiment is more important in the precious metals markets as they are emotionally driven. Sentiment helps us predict and measure potential volatility. It helps us gauge short and medium term risk.
Even after 20 months of record gains in the precious metals and related shares, sentiment remains relatively favorable. In fact, it looks better relative to 2006 and 2008. With the collapse of 2008 still fresh in mind, investors are quick to worry and that worry is sustained and enhanced by the sustained advance in the metals and shares.
Of course the misguided and ill-informed think the spectacular recovery is an aberration. Not once have they said it’s a bull market. We have to remember that your typical trader, broker, analyst has never witnessed a bull market in Gold. They think the days of the 80s and 90s are the norm. Throw in the “bubble fatigue” as a result of the past 10 years and there will be plenty of skepticism as Gold soars to $2000/oz and higher in the next 12-18 months.
For complete sentiment and technical analysis and fundamental analysis on the gold and silver stocks, consider a free 14-day trial to our premium service.
Written By Jordan Roy-Byrne, CMT From The Daily Gold
SPDR Gold Shares ETF (NYSE:GLD)
SPDR Gold Shares offer investors an innovative, relatively cost efficient and secure way to access the gold market. SPDR Gold Shares are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that interest through the trading of a security on a regulated stock exchange. The introduction of SPDR Gold Shares was intended to lower many of the barriers, such as access, custody, and transaction costs, that have prevented some investors from investing in gold.
SPDR Gold Shares represent fractional, undivided beneficial ownership interests in the Trust, the sole assets of which are gold bullion, and, from time to time, cash. SPDR Gold Shares are intended to lower a large number of the barriers preventing investors from using gold as an asset allocation and trading tool. These barriers have included the logistics of buying, storing and insuring gold. In addition, certain pension funds and mutual funds do not or cannot hold physical commodities, such as gold, or the derivatives.
Key Info
| Name | SPDR Gold Trust |
|---|---|
| Objective | Designed to track the price of gold (net of Trust expenses) |
| Symbol | GLD |
| Exchange | New York Stock Exchange Arca |
| Initial Pricing | Based on the price of 1/10th of an ounce of gold |
| Estimated Expense | 0.40%* |
| Minimum Order Size | 1 share |
| Sponsor | World Gold Trust Services LLC |
| Trustee | BNY Mellon Asset Servicing |
| Custodian | HSBC Bank (USA) |
| Marketing Agent | State Street Global Markets, LLC, an affiliate of State Street Global Advisors |
| Short Sale Eligible | Yes |
| Margin Eligible | Yes |
| Structure | Continuously offered, open-ended investment trust |
* The Sponsor and the Marketing Agent have agreed to reduce the fees payable to them from the assets of the Trust to the extent required so that the estimated ordinary expenses of the trust do not exceed an amount equal to 0.40% per annum of the daily net asset value during the period ending seven years from the date of the Trust Indenture or upon the earlier termination of the Marketing Agent Agreement. Investors should be aware that if the value of the Trust assets is less than approximately $388 million, the ordinary expenses of the Trust will be accrued at a rate greater than 0.40% per year of the daily ANAV of the Trust even after the Sponsor and the marketing Agent have completely reduced their combined fees of 0.30% per year of the daily ANAV of the Trust. This amount is based on the estimated ordinary expenses of the Trust.
SPDR Gold Trust Advantages
| Easily Accessible | Listed on the NYSE Arca. |
|---|---|
| Secure | The Gold Shares represent fractional, undivided interests in the Trust, the sole assets of which are physical gold bullion and, from time to time, cash. |
| Relatively Cost Effective | For many investors, transaction costs related to the Gold Shares are expected to be lower than the costs associated with the purchase, storage, and insurance of gold bullion in a traditional gold bullion account. |
| Liquid | Structure allows for baskets to be created and redeemed according to market demand, creating liquidity. |
| Transparent | There exists a 24-hour global over-the counter market for gold bullion, which provides readily available market data. The price, holdings, and net asset value of Gold Shares, as well as market data for the overall gold bullion market, can be tracked daily at spdrgoldshares.com. |
| Flexible | Gold Shares (NYSE Arca: GLD) are listed on the New York Stock Exchange Arca and trade the same way ordinary stocks do. It is possible to buy or sell Gold Shares continuously throughout the trading day on the exchange at prices established by the market. Additionally, it is possible to place market, limit and stop-loss orders of Gold Shares. |
Investors have turned to gold ETFs as a safe haven during the recent stock market turmoil. They offer a great way to protect you against risk in your portfolio during uncertain times. We have put together some other ETF options for your viewing below:
LONG:
The investment SPDR Gold ETF (NYSE: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.
The investment ETF (NYSE: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.
The Funds ETF (NYSE:GDXJ) investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Junior Gold Miners Index (the “Junior Gold Miners Index”). For a further description of the Junior Gold Miners Index, see “Junior Gold Miners Index.”
The objective of ETF (NYSE:SGOL) the newly listed shares is to reflect the performance of the price of Gold bullion, less the Trust’s operating expenses. The Trust is open ended and is designed for investors who want a cost-effective(1) and convenient(2) way to invest in Gold as well as diversify their Gold holdings.
The investment ETF (NYSE:UGL) will seek to replicate, net of expenses, twice the performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.
The investment ETF (NYSE:DGL) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold Excess Return. The index is a rules-based index composed of futures contracts on gold and is intended to reflect the performance of gold.
The investment ETF (NYSE:DGP) seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.
The objective ETF (NYSE:IAU) of the trust is for the value of its shares to reflect, at any given time, the price of gold owned by the trust at that time, less the trust’s expenses and liabilities. The trust is not actively managed. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. The trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act.
SHORT:
The investment ETF (NYSE: DZZ) seeks to replicate, net of expenses, twice the inverse of the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.
The investment ETF (NYSE: GLL) will seek to replicate, net of expenses, twice the inverse daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics inverse to the index. It may employ leveraged investment techniques in seeking its investment objective.
Related posts:
- Are Gold ETFs Creating a Bubble? (NYSE:GLD, NYSE:IAU)
- Price Drop Concludes Gold Is Entering Bubble Phase; Expect $7,000 To $20,000 Gold By 2014 (GLD, SLV, IAU, GDX)
- Gold And Silver In A Correlation Bubble? (GLD, SLV, SPY, AGQ, GDX)
- When Will Gold Stocks Reach The Bubble Phase? (GLD, GDX, IAU, GDXJ, DZZ)
- Inverse Gold ETFs: How To Bet On A Precious Metals Bubble (GLD, DGZ, DZZ, GLL, DUST, TBAR)
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