Christian Magoon: Gold ETFs including the largest ETFs in the peer group – the SPDR Gold Trust (NYSEARCA:GLD), the iShares Gold Trust (NYSEARCA:IAU) and the Market Vectors Gold Miners ETF (NYSEARCA:GDX) – were losing ground in late trading action on Friday after a GDP number that surprised on the upside. Here’s the Google Finance chart.
Leading gold ETF products were slightly down late in the day.
The reported third quarter GDP number of 2% was a bit higher than the consensus expectation of 1.9%. This likely fanned beliefs that the economy is on a recovery path which in turn may threaten the duration of the QE3 program put in place by the Federal Reserve in late summer. The expectation and then realization of more financial liquidity from the Fed sent gold on a rally into early fall. Over the last six weeks or so that rally has sputtered out as investors once again look to the future.
Here’s the most recent physical gold ETF performance grid snapshot fromGoldETFs.biz. The funds are sorted by four week performance.
Source: GoldETFs.biz performance grid
What’s interesting about today’s declines is that the price of gold actually rose in the morning after the GDP number was reported. According to an article titled “Gold Prices Gain On Short Covering” on TheStreet.com, the price of gold rose close to four dollars earlier in the day. One expert interviewed in the article was surprised by the gold price action but thought it may have been attributed to investors covering short positions in gold.
GOLD ETFS ON LIQUIDITY ROLLER COASTER
More financial liquidity, especially in the form of U.S. Dollars, has been a primary influence on the price of gold in the last few months. More dollars being printed leads to a devaluation of the U.S. Dollar. Since gold is primarily priced in U.S. Dollars, a weaker dollar means that gold is automatically worth more dollars. In addition, as paper currency – dollars or other types – floods the market, gold’s scarcity and historic ability to function as a store of value becomes even more appealing.
Of course a stronger U.S. and world economy could lead to a slow down or even shut off of financial liquidity campaigns by central banks around the world. This would likely have a negative impact on the value of gold and hence positive economic data like Friday’s GDP number can put a chill on the appetite for gold and gold ETF products.
Going forward, gold has another few days left to go of one of its historically worst months of the year – October. However, the good news for gold ETFs is that November has been gold’s best performing month over the last ten years.
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.”