Gold ETF Funds Ignore EU Drama (IAU, GLD)
Christian Magoon: Gold ETF products like the SPDR Gold Trust (NYSEARCA:GLD) and the iShares Gold Trust (NYSEARCA:IAU) finished the week on a steady climb upward. ETF products tracking the price of gold gained around 2% on average despite a week that was sandwiched between major EU drama. Last weekend saw the surprise bailout of Spain and this weekend’s elections in Greece may position the country to leave the EU. Yet despite the chaos, gold ETF products steadily marched forward forgetting the drama. Here’s the gold ETF performance grid snapshot from GoldETFs.biz.
The gain this past week of around 2% was sizable considering physical gold ETFs have only gained close to 4% this year. Leading the pack in performance continues to be the low cost iShares Gold Trust (NYSEARCA:IAU). It is the only physical gold ETF to surpass the 4% mark for the year.
Aside from the political turmoil in the EU, gold appears to look attractive from a technical standpoint. Using the 150 day simple moving average of the iShares Gold ETF (NYSEARCA:IAU) over the last two years, gold is slightly undervalued. The annotated chart below from stockcharts.com also shows the recent lows which were confirmed twice (blue arrows) before bouncing upward. Here is the chart.
Going forward it is hard to tell how gold will react to the election results from Greece on Sunday. Throughout most of this year, gold ETF funds have declined on flare ups in Europe. Investors have flocked to the U.S. Dollar, sending gold price and demand lower. Thus should Greece descend into the chaos of an anti EU election result, it would appear that gold would be harmed. Some however may argue that the trend is changing as the bailout in Spain and the prospects of Greece leaving the EU has just pushed gold up over the last week.
However this recent rally may have to do with more than the EU crisis. While the EU has been boiling China has cut interest rates, India is expected to do so this week and poor U.S. economic data appears to make more Fed stimulus a growing possibility. Thus the larger trend of global liquidity hopes – no matter what the outcome of elections in Greece – is likely to be the real driver of gold here.
The good news for gold ETF investors is that a liquidity move does appear to be more likely each week. The bad news for gold ETF investors however could be that nothing happens and gold prices replicate their late February plunge caused by the stomping out of QE3 hopes.
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. Follow him on Twitter @ChristianMagoon. 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.”