Physical gold ETF products finished the week slightly positive after a solid rally in gold prices Friday helped to push the metal into positive territory for the week. The leading physical gold ETF in year to date performance, the iShares Gold Trust (IAU), finished the week gaining .06%. The leading gold stock ETF in 2012, the Market Vectors Junior Gold Miners ETF (GDXJ), finished the week down 2.49% after a furious rally of 2.71% on Friday.
Most of last week was filled with concerns over gold demand being weaker going forward. Concerns over a slowdown in China's economy, the continued attractiveness of equity markets and the less likely chance that another QE happens pushed gold prices downward. On Friday however a combination of favorable news hit for gold investors. Higher oil prices, U.S. housing sales dropping to a four month low and the U.S. dollar losing ground ignited a rally in gold prices. The rally in gold was the largest in a month. Here's a seven day chart of the U.S. dollar versus the largest physical gold ETF, (GLD). Note the spikes in each direction on Friday.
Physical gold ETF products have been on a downward trend over the last month and have lost 6% on average. Anti QE3 sentiment from the Fed has been backed up with stronger U.S. Economic data dashing short term hopes of further liquidity measures.
In addition concern about the strength of demand out of India and China - the two largest consumers of gold - has also weighed on gold prices. India just doubled its tax on gold imports from 2% to 4% in an effort to slow down the affect of widespread gold buying on India's budget deficit. At the same time the Chinese economy has been slowing and thus expectations of gold demand from China are being tempered. Finally the strong performance of equity markets around the world are beginning to gain investor interest and assets, cooling some interest in gold investing. This past week worldwide gold ETF assets hit a record on Tuesday then saw all of March's gains in assets wiped out by the end of the week according to Reuters.
Physical gold ETFs have positive returns for the year despite this recent decline. Here's a snapshot of the physical Gold ETF performance grid from GoldETFs.biz.
Gold stock ETFs suffered more downside over the last month, which is to be expected given their higher sensitivity to gold prices. All gold stock ETFs are now negative for the year. For example the largest gold stock ETF, GDX, has lost close to 12% of its value over the last month and is now down 3.25% for the year. This week I examined GDX and penned an article on Seeking Alpha titled "GDX: Contrarian Opportunity or Trap?"
Here's a snapshot of the gold stock ETF performance grid from GoldETFs.biz. Take note of GGGG, which has been steadily at the number two performance spot of late.
In the short term it appears that sentiment for gold will be based off economic data and related comments from government officials - primarily in the U.S. and China. These two economies are leading consumers of gold and also seem to be at an economic inflection point. Should either or both economies begin to sputter, liquidity will be introduced into the system. If a liquidity move is even perceived by the markets, gold will respond positively. If both economies gain strength though, gold seems likely to continue its recent downward trend.
Over the longer term gold seems to be well positioned as an investment at a time when paper powered liquidity has been released around the world in a scope never seen before. At some point that liquidity will catch up to the valuation of paper money, boosting the value of gold.