Christian Magoon: Investors In Gold ETFs Likely To See Material Move. Gold ETFs approach a week that is likely to be pivotal to the mid term price of gold as news of a massive bailout for Spain is digested over the weekend. Last week the building of hopes for central bank fueled liquidity moves around the world initially pushed gold prices higher. This seemed to be a wise call as China announced a surprise interest rate cut of one quarter of one percent. The cut was quickly followed by testimony from Fed Chairman Bernanke however, which put a lid on expectations for immediate liquidity moves from the United States. In addition, a lack of decisiveness from the European Central Bank and the Group of Seven Nations on the latest EU crisis flare up diminished gold’s initial shine. All gold ETFs tracking the price of gold were negative for the week including (NYSEARCA:GLD) and (NYSEARCA:IAU). Here’s a snapshot of the performance grid from GoldETFs.biz.
The $125 billion weekend bailout of Spain will again ignite the hopes of stimulus and put more pressure on Europe and the United States to unleash additional liquidity measures. This will test gold’s reputation as a safe haven asset. Further liquidity measures would appear to benefit gold in two ways. First more liquidity would weaken of the value of paper currencies like the U.S. Dollar. This would push the value of gold upward as gold is primarily denominated in U.S. Dollars. In addition the demand for scarce and valuable assets like gold should rise in the midst of more financial uncertainty. Whether any of this will actually happen, and the reason it may happen, will likely hinge on developments in the EU crisis.
Meanwhile unlike gold ETFs focused on gold price, gold stock ETFs came up with a mixed week and have been on a roll over the last month. The largest gold miners ETF, (NYSEARCA:GDX), finished last week negative yet has gained 7.5% in the last month. (NYSEARCA:GDXJ), the second largest gold miners ETF, gained 1.2% for the week pushing it into positive territory for the year. Here’s the chart of all gold ETFs tracking gold stocks from GoldETFs.biz.
Gold stock ETFs are likely to leverage any move in gold this coming week and already may have an advantage over physical gold. Indeed, stock market futures are rising on news of the Spanish bailout over the weekend giving gold ETFs focused on stocks a bit of a head start.
As the new week begins on news of bailout, gold sentiment will be tested. Gold ETFs – physical or stock focused – should see a material move, one way or the other, as the probability of further liquidity moves is gauged by investors.
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.”