India Sends Gold ETFs to Record Highs

It seems that a perfect storm is brewing for gold bullion, with a number of global factors aligning in recent weeks to push the price of the precious metal to all-time highs. Earlier this week, the International Monetary Fund announced that it had sold 200 tonnes of gold to the central bank of India in a $6.7 billion sale, another blow to the U.S. dollar that sent gold prices near $1,080 per ounce.

The IMF had previously announced plans to sell more than 400 tonnes of gold from its reserves (which stand at more than 3,000 tonnes) in order to raise money and increase lending to developing markets. Some analysts had worried that the strategy would flood the market for bullion, resulting in downward price pressure. But quite the opposite occurred, as India’s bold move signaled that big buyers are bullish on gold at its current level (although India paid just slightly more than $1,000 per ounce in the transaction).

China has been very vocal in recent months about its desire to diversify its reserve holdings away from the U.S. dollar, and has begun accumulating massive positions in gold to do so. China now holds more than 1,000 tonnes of gold valued at some $40 billion. Russia has also been buying up gold, adding nearly 100 tonnes over the last year to bring its total holdings to about 570 tonnes.

Headed Higher Still?

Despite the near vertical trajectory of gold prices in recent months, many analysts believe that there is still room for appreciation. A recent report from Bloomberg notes that many traders are eying the $2,000 per ounce mark, and a number of banks have raised forecasts for the upcoming year. Some investors see prices going even higher. For investors looking to gain exposure to gold prices, there are a number of ETF options (see our complete guide to gold ETFs for a more complete rundown):

• SPDR Gold Trust (GLD): The most popular ETF option for investors looking for gold exposure, GLD jumped more than 2% on Tuesday and has gained more than 40% over the last year. With a market capitalization now above $20 billion, this SPDR is one of the largest holders of gold in the world.

• ETFS Physical Swiss Gold Shares (SGOL): This ETF presents an appealing option for investors interested in diversifying their bullion holdings across different countries. SGOL stores its gold in secure vaults in Switzerland, a country known for protecting assets of investors from around the world.

• Market Vectors Gold Miners ETF (GDX): GDX is a global equity ETF, investing in stocks of gold miners from various countries. In recent months, GDX has effectively served as a leveraged investment on gold prices, often rising or falling by a multiple of the change in the spot price for gold bullion. True to form, GDX gained more nearly 8% on Tuesday, three times the daily change for GLD and SGOL.

Disclosure: No positions at time of writing.

Comments

[Mad Hedge F...:]

mtr News broke this morning that, out of the blue, the Reserve Bank of India bought 200 metric tonnes of gold from the IMF for a handy $6.8 billion. The news set the gold market on fire, boosting the December futures $40 to an all time high of $1,088. It is the largest transaction in the barbaric relic since the Alaric’s Visigoths sacked Rome in 410 AD. It has been public knowledge for some time that the IMF was looking to unload 403 tonnes of the yellow metal in order to fund lending to poor countries. Many traders say this threatening overhang is why gold failed to definitively break out to the upside this year, despite six attempts. The expectation was that China would take this hoard as part of a broader diversification away from the dollar. Bringing India into the fray, which had no prior history of stockpiling gold, is a whole new plate of basmati rice. Not only does this raise the prospect of a bidding war with China for more gold reserves, other cash rich emerging market central banks are likely to join the mosh pit as well, no doubt panicked by the ominously rising whirr of printing presses in the developed countries. My short term goal for gold was $1,200, but I now have to raise that to the $1,300 favored by some chartists in view of the new dynamics. If you want to see my long term target, take a look at the chart below, which has gold zeroing in on its inflation adjusted all time high of $2,358. For those who prefer holding the barbaric relic of the physical kind, visit the tightest spreads in town on American Eagles and bullion at www.millenniummetals.net/ . And while you’re there, sign up for their free research product on precious metals.

Nov 04 07:06 AM

[AndrewBaker:]

I sold my leveraged gold position when the price had moved back up, as I see price volatility going forward that would cause leverage to reduce the gains available. I'm going back in on a fallback which I expect will occur before too long, and will go back unleveraged, and with a tight stop initially, and a lower trailing stop once a profit has been established. That should give me a good return whilst also protecting against being whipsawed out by short-term volatility.

Nov 04 09:16 AM

[jambo:]

No matter where I draw the lines I'm looking at 1400/1500 4 to 5 months out. A sudden remarkable and insane resurgence of the $ could change all that.... naaaahhh!

Nov 04 03:07 PM