Gold ETFs Back To Safe Haven Status? (GLD, IAU)
Christian Magoon: Physical gold ETFs like the SPDR Gold Trust (NYSEARCA:GLD) and the iShares Gold Trust (NYSEARCA:IAU) bumped up slightly on Monday as markets began another waiting game on Europe. GLD, the largest of the gold ETFs in the world, gained about .8%. A European summit will be held this Thursday and Friday and the backdrop for it will be dire.
On Monday Cyprus became the fifth EU nation to ask for a bailout. Why? Exposure to Greek debt was cited. Also on Monday Spain officially requested a bailout for its banks due to a mountain of bad debt. Then as if girding themselves for the EU summit, Germany spoke out against EU issued bonds thus sending a bit of panic about the future of the EU through the markets. Here’s the five day Google Finance chart on GLD, with Monday’s trading action and gain being highlighted.
For now it appears that gold is acting as a bit of a safe haven. Perhaps the markets have shifted from expecting more trouble with the EU to the conclusion that it won’t be able to last given the mounting issues and political tension. If the EU collapses then gold would appear to be a attractive store of value behind the U.S. Dollar.
Monday’s bounce could also be attributed to last week’s poor showing for gold. Hopes of another QE3 were dashed by Federal Reserve Chairman Bernanke and coordinated central bank liquidity actions did not materialize. Consequently Gold ETFs sold off over 2% as markets digested the inaction. Here’s last week’s performance for all physical gold ETFs from GoldETFs.biz.
Going forward gold ETFs are likely to be in a trading range as investors await the latest developments from Europe. These developments will likely create moderate market reaction one way or the other and lead to a round of new questions about the future of the EU. It appears the endgame is near for the EU. However, this crisis will continue to drag on as long as Northern European nations like Germany are willing to find a common ground with EU members. It seems that this scenario is less likely and a new larger crisis could begin that fans gold prices and the gold ETFs that track them upward.
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.”