The Gold ETF: Where Do We Go From Here?

Mar.20.14 | About: SPDR Gold (GLD)

Summary

The GLD has unraveled and given back its gains made on the Crimea catalyst in just three days time.

The Crimea tensions remain on a hair trigger and could reignite, or Eastern Ukraine could present a new geopolitical catalyst should infighting begin there.

The new dynamic relationship between Russia and the West portends new pressures on fiat currencies, including the euro and even the dollar.

The SPDR Gold Trust (NYSEARCA:GLD) got a special lift in March from the geopolitical catalyst of Crimea and the Russian incursion into it. However, the start of this week produced three consecutive down days as it became clear Russia would get away with it. A greedy market quickly adopted a hopeful view that the trouble would end here, and that somehow Ukrainian troops will get out of Crimea without serious bloodshed. At this point, the SPDR Gold Trust has just about given back all of the gains built since the Russian incursion. Still, the dynamic and chaotic geopolitical catalyst remains at play. And what about those other factors that have supported appreciation since the start of the year? Where does GLD go from here? I expect it to settle and find support near-term and begin to edge higher on the new dynamic relationship between Russia and the West, and pressures on fiat currency.

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1-Month Chart of GLD at Yahoo

Geopolitical Catalyst

As it became clear that the West was simply not going to put up much of an effort to sway the Russians from annexing Crimea, gold lost its safe haven swagger. The referendum in which the Crimean people determined under questionable circumstances to snub their Ukrainian landlords and cry out for mother Russia set the stage. Then in the most recent act, Russia's President Putin signed a treaty to annex and I suppose protect Crimea from the alleged fascists that Putin claims now run the Ukraine from Kiev. The response from the West, though, would be blasphemous to the souls of Winston Churchill and Woodrow Wilson. The set of sanctions imposed against Russia look soft, with a group of individuals targeted rather than the Russian state. On Wednesday, President Obama ruled out the military option as well.

So, given the likelihood of Ukrainian withdrawal from Crimea, on Tuesday morning, I suggested investors could take off their Crimea bets on the GLD. My only worry was that the aggressive Russian forces could still set off a fuse with Ukrainian military in place in Crimea, and that such an event could set chaos in motion and start a war. However, Ukraine seems to be surrendering Crimea given the lack of tangible support from the West, and is making plans for a U.N. assisted withdrawal of its military assets out of the region. So, the case against the safe haven play in gold is hardly supported any longer, and the GLD looks to slide further on its momentum as this situation settles further.

Security

03/14 - 03/19

02/28 - 03/14

SPDR S&P 500 (NYSEARCA:SPY)

+1.1%

-0.9%

SPDR Gold Trust

-3.8%

+4.3%

Market Vectors Gold Miners (NYSEARCA:GDX)

-8.3%

+7.1%

Direxion Daily Gold Miners Bull 3X (NYSEARCA:NUGT)

-23%

+21.5%

iShares Silver Trust (NYSEARCA:SLV)

-4.0%

+1.3%

Goldcorp (NYSE:GG)

-7.0%

+6.7%

Newmont Mining (NYSE:NEM)

-6.4%

+13%

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The distance the GLD had traveled to date and over the last two weeks was significant. The crisis was plenty priced in from the end of February through the middle of March. But over the last three days, the depreciation of the GLD has just about equaled the gains made through the crisis. Some of the other precious metals ETFs seen in the table above here have already overcompensated for what appears to be a defused event risk. Both the Market Vectors Gold Miners and the Direxion Daily Gold Miners Bull 3X have done so, while the GLD is about a half point short of leveling out.

At the start of the year, the catalyst for gold and its tracking ETF the SPDR Gold Trust was simple capital flow into previously beaten down metals and the GLD ETF from the previously high-flying equity sector and the SPDR S&P 500. However, that flow should have exhausted itself by now as well. So what's next for the GLD then?

I think the answer is clear. Once downside momentum runs thin, which will probably happen once some trigger happy soldier shoots someone in Crimea or if Eastern Ukrainians begin fighting one another, the GLD will halt its slide. To start the day on Thursday March 20th, the GLD was down only fractionally after yesterday's two-point slide. We may be at the point where we start to look for our next driver.

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5-Day SPY Chart at Yahoo

Janet Yellen failed to provide it yesterday when the FOMC Monetary Policy was released and after the new Fed chief gave her first press conference in the role. You can see that in the chart above here, because the SPY security dropped at the hour of the press release and continued further as Yellen spoke. However, the GLD security continued to fall through the same news event, as it moved on the easing geopolitical tensions.

Moving forward, I expect the next catalyst to be tensions between Russia and Europe and the United States, as the proud Russian leader perhaps further tests the patience of the West. His power has now been proven true, and he may use it again to further stress Europe and the euro. The source of Russian power is European dependence on Russian energy resources. Any threats or action regarding energy delivery through Ukraine will likely harm the euro. I also expect Putin to push against the dollar for as long as sanctions exist against Russia. This is supportive for gold and the SPDR Gold Trust. So, once the downside momentum settles here, as early as today, I suggest investors reconsider the GLD on the weightier upside drivers discussed herein.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.