After plummeting last year in an extreme once-in-a-lifetime orgy of selling, GLD’s holdings have remained stable all throughout 2014.
That’s despite the fierce headwinds of the levitating stock markets continuing to howl, and the recent gold sentiment wasteland of the summer doldrums. GLD holdings' resiliency is very bullish.
As these lofty stock markets inevitably sell off, stock traders will return to GLD. Their necessary GLD-share buying to re-diversify unbalanced stock portfolios will add big marginal gold investment demand.
Deutshce becomes one of the most bearish on the Street, cutting its gold price forecast to an average of $1,141 for the year, down 14.7% from the bank's previous estimate, and far below 2013's $1,413 average.
Last week, BAML also joined the rush of firms cutting their gold targets.
Deutsche also slashes its forecast for silver by 19% to $19 per ounce, and WTI crude to $88.75 per barrel, $10 below 2013.
"A third year of rampant U.S. oil supply growth propelled by tight/shale oil development, combined with the potential for the normalization of Iranian oil exports, is increasingly painting a picture of an oversupplied global oil balance, which poses meaningful downward pressure on oil prices."
Natural gas is held steady at $4.25 thanks to excess volume withdrawn from storage thus far this winter.
"For contrarians, the [gold] outlook appears brighter," write the Ned Davis commodity team of John LaForge and Warren Pies, acknowledging the curiosity of the metal's slump despite central banks printing away and unprecedented physical demand from China.
Timing is a tough issue, but their best guess is sometime around the end of this quarter, triggered by a mid-year stock market correction. Look for the metal and miners to move first, and the equity downdraft to follow.
Gold (GLD -0.9%) is off marginally today to $1,249 per ounce, but the broad mining sector (GDX -0.9%) isn't showing any benefit from a $7.50 per share cash offer for Allied Nevada by China Stone Mining Development.
Not shaken by gold's big start to the year, BAML slashes its price forecast to $1,150 per ounce from a prediction of $1,294 made just six weeks ago.
Silver is cut to $18.38 from $26.38.
“If investors stopped selling gold, prices could stabilize around $1,200.," says analyst Michael Widmer. "Yet, this is not our base case and a more likely scenario is for investors to continue reducing their exposure. Our model suggest that this could take prices down to $1,000."
Another big leg down, however, could be an opportunity for bulls, says Widmer, who muses about "interesting entry points" for the metal this year.
State Street Global Advisors, the industry giant behind popular SPDR funds such as SPY and GLD, will laund the SPDR MFS Systematic Core Equity ETF (SYE), Growth Equity ETF (SYG), and Value Equity ETF (SYV) on January 9th.
Each employing different size and style specific strategies, these new funds will appeal to investors looking for capital appreciation and agility in the markets.
The addition of 3 active ETFs is a large step for State Street, as there are currently only 5 ETFs in their portfolio that employ an active strategy: GAL, RLY, INKM, ULST, SRLN
"The bottom line is that several factors, including chart patterns, sentiment and momentum indicators show signs of life for both (precious) metals and metals mining stocks," writes technician Michael Kahn.
He notes the GLD - bottoming last month at about the same level as it did in June ($115, or $1,180 per ounce for gold) - is beginning to form a double-bottom chart pattern, though there remains a ways to go before this would be confirmed. The iShares Silver Trust (SLV) is showing a similar formation.
The GDX is notable for a bullish divergence in which the relative strength index rises even as the price action makes lower lows - "the first sign that the bears have lost their power."
"Resilience last week in the face of a rallying U.S. dollar shows that there were forces supporting gold other than simple currency factors."
The Swiss National Bank is canceling dividends to shareholders for the first time since its founding in 1907 after it booked a $16.6B loss on its gold holdings in 2013, swamping currency gains and the profit on a sale of former UBS assets. The bank will also not be making any payments to the 26 Swiss cantons (states) for the first time since 1991.
The SNB held 1,040 metric tons of the yellow metal as of the end of 2012, and the big loss last year may (or may not) dent a movement which would require the central bank hold at least 20% of its assets in gold - a proposal the bank is strongly resisting.
"Anyone who bought gold after 2010 is currently in the loss zone," says Bank Vontobel's Andreas Megg.
After a big start to 2014, gold is flat on today's session at $1,240 per ounce.
You can profit on the gold miners in the 2014, says Goldman, but not by owning them. Instead, says the team, take note of the divergence in volatility on the SPDR Gold Trust (GLD) and the Market Vectors Gold Miners ETF (GDX).
While the miner's ETF volatility is priced for a nightmare scenario, volatility on the price of gold itself has failed to keep pace. A straddle - in which a punter sells both a put and call option on the GDX - would pay off if the market "begins to chill out on the subject of gold miner volatility," writes Brendan Conway.
As far as the metals or the miners, they're not yet a buy. “With rising U.S. rates and a less accommodative Fed, we believe a sharp rise in the gold price and gold miner profitability is the least likely scenario."
Off 1.3% in morning action to $1,188 per ounce, gold is set to close the year on the lows, down nearly 30% for its worst performance in 32 years. Investors pulled $38.6B from gold funds this year, and holdings in the 14 largest ETPs plunged 33% to 1,764.1 metric tons - the first annual decrease since they started trading in 2003.
"Gold is something we avoid," says Marketfield Asset Management CEO Michael Shaoul, reflecting the prevailing attitude of the day. Prices are "likely to grind lower," says Goldman's Jeffrey Currie, predicting the metal drops to $1,050 next year.
Seems the Fed taper wasn't priced in to gold prices after all, as spot gold tumbles briefly below $1,200/oz. to six-month lows, and the leading gold miners ETF (GDX) slides to new 52-week lows.
A few minutes ago, gold (GLD) -2.6% to $1,202.80/oz., silver (SLV) -4.2% to $19.20.
The taper is "another sign of increasing normalization for the world economy," Macquarie analyst Matthew Turner says. "Gold's insurance function is less desirable in that environment."
Commerzbank’s commodity strategists argue the selling is overdone: "The fact that money will remain extremely 'cheap' for a long time yet should in fact have lent support to the gold price rather than it coming under pressure" due to the impending end to QE.
The morning after: Stock index futures are about flat after yesterday's post Fed, post-taper initiation moonshot.
Europe's ahead around 1.5% and the Nikkei gained 1.7% overnight, though Shanghai and Hong Kong each fell about 1%.
The 10-year Treasury yield remains near its highest level of the year at 2.9%, and precious metals - which fell following the Fed announcement - accelerate that decline. Gold is off 2.4% to $1,205 per ounce. Silver - 3.7% to $19.33.
"The Committee sees the improvement in economic activity and labor market conditions ... as consistent with growing underlying strength in the broader economy," the FOMC says, adding that the decision to scale back QE by $10B per month is based on "the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions."
Although the Committee says it will "likely reduce the pace of asset purchases in further measured steps [should] incoming information support [the] ongoing improvement in labor market conditions and inflation moving back toward [the] longer-run objective," the Fed notes that asset purchases are "not on a set course."
FOMC also says it "anticipates .. that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%."
Updated FOMC projections: 2014 PCE inflation now seen at 1.4-1.6% (from 1.3-1.8% in September); 2014 GDP now seen at 2.8-3.2% (from 2.9-3.1% in September); 2014 unemployment rate now seen at 6.3-6.6% (from 6.4-6.8% in September). Full release
10-year yield is at 2.91% versus 2.87% just prior to the announcement.
Dow (DIA +0.9%), S&P (SPY +0.6%), and Nasdaq (QQQ) all staged brief rallies on the news but have since retraced a bit. Gold (GLD +0.3%) fell sharply initially but recovered.
Holdings in the 14 largest gold ETPS have plunged 31% to 1,813 metric tons YTD, according to Bloomberg, the first annual decrease since the funds started trading in 2003. The median guess of a Bloomberg survey of analysts calls for another 311 tons to be withdrawn in 2014.
“Why would you want to hold gold and see the value depreciate when you can buy equities and see your money grow," asks wealth manager Jeff Sica, providing a locker-room quote for the gold bulls.
Taking the other side is Commerzbank head of commodities research Eugen Weinberg, who says the "weak hands" are already out of the market, and inflows and price stabilization should return in Q2.
Gold is higher by 0.8% today to $1,244.50 per ounce.
I'd rather buy silver (SLV -3.8%) says Jim Rogers, when asked to choose between precious metals. Gold (GLD -2.1%), he says, is off about 30-35% from its highs while silver is down more like 60%. Rogers is an owner of both, but not adding just yet, and while he's hedged his gold holdings, he hasn't done so for silver because it's already down so far.
"If it goes down more, I hope I'm smart enough to buy."