What's Next for Gold and Silver ETFs?

The price of gold has been staying steady above its four-figure mark, and investment in gold and its related ETFs has drawn many seeking to strike it rich. But will gold’s uptrend last?

Gold has held onto its $1,000/ounce price level but in real, or inflation-adjusted, terms, the precious metal is short of its all-time high, writes Paul Amery for IndexUniverse. After adjusting for the effects of U.S. consumer price inflation, it is calculated that gold’s 1980 peak price of $850 roughly equals $2,358 today.

Daniel Brebner and Deutsche Bank attribute inflation, inflation volatility and the performance of the U.S. dollar as the main drivers of gold prices. Brebner argues that gold does well in deflationary periods when gold is seen as a safe haven, and in inflationary environments when gold is hedged against money over supply. He sees periods of disinflation, or moderating inflation, as the bane of gold prices.

Currently, there are inflationary and deflationary voices in the market. But, Brebner sees that uncertainty over future price levels means inflation volatility, which he has said is bullish for gold.

Investor demand for gold is on the rise. China is seen as likely to purchase a hefty chunk of the world’s gold as it seeks to accumulate hard metal assets. And, of course, demand for gold ETFs is also increasing as gold investments become more popular.

Deutsche Bank says that if there is moderating risk premiums, low but contained inflation and recovery from financial crisis, gold could drop back to $650/ounce. If the markets are less benign, on the other hand, gold prices could reach up to $2,500.

Meanwhile, a pullback for silver is seen as in the cards after the recent run-up, reports Geoff Candy for Mineweb. RBC Capital Markets feels that despite the pullback they’re predicting, they’re still feeling positive about the metal because of a weakening U.S. dollar, which could continue to boost the price of precious metals. They also feel that growth in the industrial sector and investment demand will offset the drop in demand for silver in photography.

• SPDR Gold Shares (NYSEArca: GLD): up 14.2% year-to-date

• iShares COMEX Gold Trust (NYSEArca: IAU): up 14.2% year-to-date

• PowerShares DB Gold (NYSEArca: DGL): up 12.8% year-to-date

• ETFS Gold Trust (NYSEArca: SGOL): launched earlier this month

Max Chen contributed to this article.

Comments

[TonyCinTX:]

I am in Gold at 25% of my investment. Although I politically support the government spending that has and will occur on Obama's watch as necessary, I cannot see how it we can possibly pay for it without printing money. Print and spend is fine by me; it deflates our real debt (by paying it off with inflated dollars), but it does mean inflation and that HAS to mean gold rising.

I guess if you think we are going to get out from under the current financial mess by some means OTHER than printing money, Gold is a bad bet for you. But I will remind you that taxes, fees, or reduced government payments of any kind are politically unpopular, and only about 15% of voters care anything about the deficit, and only about 5% understand the ramifications (or are even affected) by the government printing money. So my guess is, the politically easy way out is to start the presses.

Sep 25 09:38 AM

[Laurence Hunt:]

In brief, I think all the evidence is that gold is preparing for a strong run right here, right now. In my view, $1000 gold is our ceiling but Asia's floor. I have no illusions about Asia's problems, but 4 billion Asians are moving forward nonetheless, and gold is central to Asian thought. Why the focus on Asia? They are a new variable on the scene, and very much in favour of the gold price. But the other variables are lining up too. I think all here are aware that we are years away from any bubble of any kind in gold. I don't buy the price suppression theories at all though. The price of gold is an afterthought for the Fed, even the mythologized PPT. There is no conspiracy against gold, there is just a market populated by players with competing motivations. I do think a short squeeze on the Comex would be interesting this fall. The shorts have won for years just by selling short when gold is technically overbought. My maxim - gold can do what it wants to do. Presently, I'm watching the comparison of the present gold chart to September 2007. All we're talking about here really is a bull market. Bull markets rise when they are overbought. That is investing 101. Because rises are sharp, steep and relatively brief (think about 2 days, 2 weeks ago for a recent example), the longer periods of consolidation (and falling prices) shake out the uncommitted. That is simply happening again. Could we see a sharp pullback in the gold price - maybe this week? Sure. I guess it depends on how many are willing to be shaken out of their long positions in gold, and why they are holding it in the first place. But gold is oriented upwards right now, plain and simple.

Sep 28 01:42 AM