Gold ETF Funds Go Red (GLD, UUP)
Christian Magoon: Gold ETF funds have historically been desirable due to gold’s history of holding up during crisis events. The current EU crisis however has now turned Gold ETF Funds red for the year. This has investors concerned. Here’s the year to date chart of the largest Gold ETF Fund, the SPDR Gold Trust (NYSEARCA:GLD).
GLD crossed over into negative territory on Monday and late in the trading day on Tuesday it is still falling. Here’s the latest quote for the SPDR Gold Trust (GLD).
The EU debt crisis and market uncertainty is causing investors to flee to an asset considered safer than gold currently – the U.S. Dollar. As the value of the U.S. Dollar increases it lessens the amount of dollars needed to buy gold, hence the price of gold falls. In addition to the currency move, the demand for gold has been a concern as well. India and China are the world’s largest consumers of gold and they both are slowing down economically. This weakens the demand for gold, thus giving it less price support.
Here’s a chart of the bullish U.S. Dollar ETF (NYSEARCA:UUP) which tracks an index based on the strength of the U.S. Dollar relative to other currencies, and GLD. Note the performance difference over the last week or so.
Going forward it appears that fear and uncertainty are the trends likely to rule the market as the EU crisis continues to develop and China and India sputter. This will likely send gold and the gold ETF funds that track it lower while the U.S. Dollar benefits.
Christian Magoon is Publisher of GoldETFs.biz and IndiaETFs.com. He is also CEO of Magoon Capital, a strategic consultant firm to asset managers. Christian Magoon is an ETF insider, having launched over 40 ETFs in the United States to date. A widely recognized thought leader on finance and market issues, Christian regularly contributes to many financial media outlets. Prior to forming Magoon Capital in 2010, Christian was President of Claymore Securities (now Guggenheim Investments), where he built one of the fastest growing and most innovative ETF businesses in the country, gathering more than $3 billion in AUM in three years. He launched more than 40 ETFs, introducing many “firsts” to the U.S. market, including the first Frontier Markets, Sector Rotation, Solar Energy, Timber, BRIC and suite of China focused ETFs. Christian consistently provides his industry insights and knowledge as a commentator in the U.S. media speaking publicly on macro investment issues and ETF related topics. In 2008, he was named by Institutional Investor News as one of the five people to watch in the U.S. ETF marketplace. In 2011, Financial Planning magazine dubbed Christian an “ETF Pioneer.”