Gold ETF products finished the week with solid gains of 4% - 9%. The biggest factor moving gold prices upward was the Federal Reserve's comments on Wednesday concerning interest rates. Essentially the Fed said that low interest rates will continue through late 2014 and left open the possibility of further efforts to increase liquidity. Here's a graphic breaking down the sentiment within the Federal Reserve on the timing of future rate increases.
The Fed statement immediately sent the U.S. dollar lower and gold higher. In fact, the price of gold rose around three percent on Wednesday alone. This move continued a 2012 trend as gold has significantly outperformed the U.S. dollar. Here's a year to date chart of the largest physical gold ETF (GLD) versus the U.S. dollar from stockcharts.com.
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Physical gold ETFs, which store gold bars in a vault, gained around 4% for the week. This pushed physical gold ETFs above 11% for the year. It is notable that this return number surpassed the 2011 total return of physical gold ETFs of 10%. Leading this ETF category in performance is the iShares Gold ETF, IAU. This is likely due to IAU's category low expense ratio of 25bps. For example the largest physical gold ETF, GLD, trails IAU by 12bps points but has an expense ratio of 40bps. Here is the list of all physical gold ETFs and their performance.
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Source: GoldETFs.biz
The real story in 2012 has been gold stock ETFs and their positive start after a dismal 2011. This past week was no exception. Gold stock ETFs surged around 9% for the week, more than doubling physical gold ETF returns. For the year gold stock ETFs have risen between 11% - 20%. The leading ETF continues to be the junior gold miners ETF from Market Vectors, GDXJ. GDXJ had a tough 2011 but has rebounded significantly in 2012. Continuing to trail the group in performance is the large cap gold miners ETF from Market Vectors, GDX. GDX has only managed to match the return of physical gold ETFs year to date. Taking a longer term look at gold stock ETFs, GDX has a one year return of 6% while GDXJ is still in negative territory at -12%. Here's the performance chart of all gold stock ETFs.
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Source: GoldETFs.biz
Both physical gold and gold stock ETFs are still off their one year highs, however they have moved above their 100 day moving average. The charts below seem to show GLD (physical gold) better positioned than GDXJ (junior gold miners).
Source: Stockcharts.com
GLD is only slightly above its 100 day moving average and has spent a fair amount of time above this average over the last two years.
Source: Stockcharts.com
GDXJ is noticeably higher than its 100 day moving average, which has been unusual over most of the last year. GDXJ may have risen too far and too fast.
Going forward the weakness or strength of the U.S. dollar appears to be the primary factor affecting gold prices. A flare up in tensions over Iran or in the intensity of the EU debt crisis are two geopolitical events that could materially move the dollar and gold prices. For now however, gold is still well below 2011 highs and appears to be well positioned in a low interest rate environment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
