Christian Magoon: Gold ETF funds surged on Wednesday to highs not seen since early in the month. Renewed hopes of liquidity were fanned by comments and data from Europe, with a little Federal Reserve gas poured on, over the last 24 hours. Gold ETF funds like the SPDR Gold Trust (NYSEARCA:GLD) and the iShares Gold Trust (NYSEARCA:IAU) surged close to 1.5% for the day. This was one of their biggest moves upward in close to a month.
Here’s a snapshot of GLD’s last five days of performance. This NASDAQ chart captures the scope of Wednesday’s surge.
Several news stories broke on Tuesday night about the Federal Reserve considering another form of stimulus to inject into the U.S. economy. This is reportedly being considered in light of less than stellar growth and economic data. According to an article in the New York Times:
A growing number of Federal Reserve officials have concluded that the central bank needs to expand its stimulus campaign unless the nation’s economy soon shows signs of improvement, including job growth. The question is expected to dominate the agenda when the Fed’s policy-making committee meets next week, with some members pushing for immediate action while others seek to delay a decision at least until the committee’s next meeting in September, so they can see a few more weeks’ worth of economic data.
Wednesday’s big news was centered around the deteriorating economic conditions in Europe and a potential new way to fix the EU debt crisis. First the United Kingdom and Germany reported economic numbers showing the weight of the debt crisis taking a toll on their economic growth. The extent of the slowdown, especially in the U.K., appeared to take many by surprise. Besides the economic data, it was reported that an ECB official supported giving the European Stability Mechanism a banking license, thus opening the way for more money to be thrown at the EU crisis.
Wrapped all together – the Fed’s considerations, deteriorating economic conditions in the U.K. and Germany, and a potential new round of funding to counter the EU debt crisis – these factors seemed to push investors toward the conclusion that more stimulus is on the way.
Excluding Wednesday’s rally, here’s the year to date performance chart of all U.S. listed gold ETF funds tracking the price of gold from GoldETFs.biz.
Stimulus, especially a QE3 in the United States, would be very bullish for gold ETF funds tracking the price of gold. This action would likely devalue the U.S. Dollar (NYSEARCA:UUP), of which gold is primarily denominated in, making gold worth more dollars. Thus not only would gold gain from a currency devaluation, the demand for gold would likely increase those gains as investors pour into this scarce asset.
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.”