QE3 Momentum Fades For Gold ETFs

Includes: AGOL, GLD, IAU, SGOL
by: Christian Magoon

The GoldETFs.biz performance grid shows that gold ETFs lost around 1.5% over the past week. Concerns stemming from a credit downgrade of Spain and a likely EU sponsored bailout took its toll on gold prices. In addition, the release of upbeat economic data in the U.S. - from jobs to consumer sentiment - tempered some expectations on the duration of QE3. Finally the harvesting of recent gains in gold seemed apparent as well. The largest gold fund, the SPDR Gold Trust (NYSEARCA:GLD), lost close to 1.5% for the week. Here's a snapshot from the gold ETF performance grid.

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Concern over the possibility that Spain may need to seek a bailout from the European Central Bank (ECB) did not help gold prices this past week. That concern strengthened the U.S. Dollar. Strictly from a monetary standpoint, gold becomes worth less dollars during periods of dollar strength. This is because gold is primarily denominated in U.S. Dollars. Here's the NASDAQ interactive performance chart comparing GLD to the PowerShares DB U.S. Dollar Index Bullish ETF (NYSEARCA:UUP) over the last week.

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Profit Taking And The Presidential Race?

Of course other factors also influence the price of gold, primarily supply and demand dynamics. Demand for gold appears to be less intense after gold's QE3 inspired bull run has dissipated. Investors and traders are likely locking in profits after this surge.

In addition, the outcome of the U.S. Presidential election is still unknown which may be giving gold investors some pause. It is unclear how a change in the administration would impact current QE3 efforts. Republican candidate Mitt Romney has expressed concern over the effectiveness of past stimulus efforts. While Federal Reserve Chairman Ben Bernanke's term lasts into 2013, a Romney presidency would have the ability to name a new Fed Chairman afterward. This introduces potential uncertainty over the current stimulus approach the current Chairman has favored.

For the above factors and more, gold ETFs are in negative territory over the last four weeks. Here's the performance grid snapshot from GoldETFs.biz. (Note that AGOL is positive, however it has such a minimal amount of shares traded that is can see considerable short term return discrepancies versus the peer group.)

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Despite the recent slowdown and consolidation of gold ETFs, the funds are still in double digit gain territory for the year. Leading the pack is the lowest priced fund, the iShares Gold Trust (NYSEARCA:IAU). IAU has gained over 12% for the year. Trailing it by 25bps is the second best performing gold ETF, the ETF Securities Swiss Gold ETF (NYSEARCA:SGOL). Here's the performance grid snapshot sorted by year to date performance.

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Going forward gold funds should continue to be influenced by developments in Europe (Spain) and economic data from the United States. Investors should remain vigilante as the price of gold has lost forward momentum and now appears to be fading due to the lack of another positive catalyst in the immediate future.

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. I have no business relationship with any company whose stock is mentioned in this article.