This Weeks Economic Data Could Weigh On The Gold ETFs

gold-interest-rate“Whether the recent rally in the gold price – and the prices of the shares of gold mining producers – represents a new uptrend or is simply a counter-move as part of a deeper correction could be answered this week following the release of the minutes from the Federal Open Market Committee meeting tomorrow and the important jobless claims and employment report released Thursday and Friday, respectively. Most economic data points have been positive over the past six weeks and the continuation of this trend could weigh on the gold price, exchange-traded gold funds such as the (GLD), and the shares of gold mining producers,” Gold Alert Reports.

“One of the most critical questions facing the markets in 2010 is the sustainability of the economic recovery in the absence of the Federal Reserve’s crisis-driven monetary policy. Yesterday’s ISM data is the latest in a series of positive economic reports indicating that the massive amount of government stimulus and central bank quantitative easing (the sophisticated term for printing money) have been effective, at least in the shorter term, in rescuing the economy from a deep recession. However, the risks of unintended consequences stemming from the government actions are beginning to rise. Inflation expectation are creeping higher – as measured by the steepening yield curve and the widening spread between Treasury yields and Treasury Inflation protected Securities (TIPS). This risk of the U.S. dollar losing purchasing power at an accelerated pace represents a significant tailwind for the gold price, the (GLD), and the shares of gold mining producers,” Gold Alert Reports.

“Noted economist and recent Nobel Prize winner Paul Krugman predicted at the recent annual meeting of the American Economic Association that the U.S. economy has a 30-40% chance of suffering another recession in the second half of 2010 as the monetary and fiscal stimulus are withdrawn by the government. Krugman went on to say that the probability that economic growth will slow enough to cause a further rise in the unemployment rate is greater than 50%. Krugman’s stated that “Small business is still very constrained in its borrowing…We do not have a fully healthy, functional financial system.“ In essence, while GDP figures may be on the mend, the distortions that emanate from government spending paint a picture of a much healthier global economy than the underlying fundamentals merit,” Gold Alert Reports.

“The continued strength in the gold price, the GLD, and gold mining stocks is a reflection of this fractured financial system and the declining confidence in fiat currencies. Central bankers have demonstrated their commitment to fight the deflationary impact of the credit crisis by any and all means necessary. Therefore, if the economy does dip back into recession and/or if the financial system clogs up again, the Federal Reserve will be right there pumping liquidity into the banking system through programs and initiatives such as quantitative easing in order to stem the tide of deflation,” Gold Alert Reports.

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We have listed some options for investing in gold through ETFs below:

LONG:

The investment (GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.

The investment (GDX) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.

The Funds (GDXJ) investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Junior Gold Miners Index (the “Junior Gold Miners Index”). For a further description of the Junior Gold Miners Index, see “Junior Gold Miners Index.”

The objective of (SGOL) the newly listed shares is to reflect the performance of the price of Gold bullion, less the Trust’s operating expenses. The Trust is open ended and is designed for investors who want a cost-effective(1) and convenient(2) way to invest in Gold as well as diversify their Gold holdings.

The investment (UGL) will seek to replicate, net of expenses, twice the performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.

The investment (DGL) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold Excess Return. The index is a rules-based index composed of futures contracts on gold and is intended to reflect the performance of gold.

The investment (DGP) seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.

The objective (IAU) of the trust is for the value of its shares to reflect, at any given time, the price of gold owned by the trust at that time, less the trust’s expenses and liabilities. The trust is not actively managed. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. The trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act.

SHORT:

The investment (DZZ) seeks to replicate, net of expenses, twice the inverse of the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.

The investment (GLL) will seek to replicate, net of expenses, twice the inverse daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics inverse to the index. It may employ leveraged investment techniques in seeking its investment objective.

 

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