Outlook For Precious Metal ETFs [SPDR Gold Trust (ETF), Market Vectors Junior Gold Miners ETF]

Concerns as Well 

Despite the move higher by gold in recent sessions, Tuesday saw a big drop for the precious metal. Concerns reached a fevered pitch over gold demand in China, as well as a stronger dollar, forcing many to sell off their positions in the yellow metal. In fact, gold retreated below the $1,300/oz. mark in Tuesday trading on the news.

This shows that gold is by no means in a straight up trajectory following its massive slump last year, and that losses are definitely possible despite the overall short term bull trend.

Even with the drop, the most popular gold ETF – SPDR Gold Trust (NYSEARCA:GLD) – having an asset base of $34.3 billion has gained over 6% to start the year. Other ETFs such as Physical Asian Gold Shares (NYSEARCA:AGOL), COMEX Gold Trust (NYSEARCA:IAU), Physical Swiss Gold Shares (NYSEARCA:SGOL) and DB Gold Fund (NYSEARCA:DGL) have also recorded similar gains in the time frame, and many are close to break even for the trailing fifty two weeks as well.

Meanwhile, gold mining ETFs have performed even better, with the broad Market Vectors Gold Mining ETF (NYSEARCA:GDX) adding roughly 9% and the small cap-focused Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) soaring by nearly 9% so far this year as well.

Bottom Line

Though the yellow metal is making the most of the political crisis, some experts believe that the current rally is likely to fizz out, especially after the recent move lower. Two of the major banks – Morgan Stanley and Goldman Sachs Group – are bearish on gold and favor equity and credit over safe haven assets (read:AdvisorShares Launches 4 Innovative Gold ETFs).

Moreover, demand in China, the world’s biggest gold consumer, is likely to remain suppressed this year due to growth concerns there. A recent estimate from the World Gold Council suggests that the demand for bullion is likely to remain flat in 2014.

Falling demand from China, which saw its appetite for gold expanding every year since 2002, might threaten the recent recovery in gold prices. Moreover, a positive outlook on the U.S. economy for this quarter and for the second half of the year is also expected to dampen gold’s return, suggesting that the recent run in gold prices might lose some steam in the coming weeks

This article is brought to you courtesy of Eric Dutram.

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