Gold ETF News: After 30% Gain in Past Year, Where Next for Gold?

Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, had the following commentary based on today’s market activity and the week ahead.From its recent low under $1,090 an ounce, gold has recovered lost ground, trading above $1,120 in past days.  And while gold prices have appreciated nearly 30 percent from a year ago, gold remains below its all-time high of $1,227 reached in early December.  The question of “Where next?” may rest in the following factors: 

The Euro:  Will the Euro regain its lost favor, or will sovereign risk considerations push the European currency still lower against the U.S. dollar?  In the recent past, capital flight and currency speculation gave the dollar a boost, and the “appearance” of a stronger dollar has been gold’s chief nemesis ever since Europe’s sovereign risk crisis moved to center stage.  Greece’s announced “bail-out” plan in March eased sovereign-risk fears and gave gold some room to recover.  But Europe’s currency crisis is far from over.  Credit default markets are again signaling rising anxiety, not only over Greek debt but also over the sovereign debt of Portugal, Spain and Italy.  In the near term, another run on the Euro could send gold lower.  

Federal debt: Rising anxiety over America’s huge federal debt (as evidenced by the mixed reception by foreign central banks and institutional investors to U.S. Treasury debt offerings in the past couple of months) is undermining faith in the U.S. dollar and calling into question its future purchasing power.  As concerns about the dollar mount, as central banks and foreign investors demand a rising risk premium on U.S. Treasury debt offerings, the effect of Europe’s sovereign debt crisis and uncertainty about the future viability of the continent’s common currency will have a diminishing effect on the dollar – and gold will be free to reflect its inherent value.  

Global demand:  Will strong physical demand from China, India, and other important Asian gold markets continue to underpin the price, set an effective floor beneath the market, and limit downside risks?  Physical demand from this region, particularly India and the Middle East, tends to be extremely price sensitive.  In recent weeks, however, particularly as gold dipped toward $1,090 an ounce, increased buying from the region (China, India, Thailand, Vietnam, Indonesia, Hong Kong, Singapore, and the Arabian Gulf states), provided strong support and helped push the price back above $1,100.  Significant and substantial growth in gold demand from this region pushed by a range of factors will have a very positive effect on the dollar price of gold – something Western investors have come to anticipate.  

Western investment:  Investors are returning to gold exchange-traded funds (ETFs) after several months of lackluster interest.  Bullion held on behalf of the 12 gold ETFs we monitor, rose by 929,373 ounces in March, recording the first monthly gain since last November.  In contrast, gold ETFs saw net sales of 825,501 ounces in the first two months of this year.  In addition, demand for gold bullion coins has also picked up in recent weeks, indicating that interest in gold from individual “retail” investors is also perking up.  

As all of these developments coalesce positively for gold, we are still confident in our forecast of $1,500 gold by the end of 2010.  

To arrange an interview with Jeffrey Nichols, please contact Liz Cheek of Hill & Knowlton at (212) 885-0682 or elizabeth.cheek@hillandknowlton.com  

About Rosland Capital  

Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California and buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals.  Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver, platinum, palladium, and other precious metals.  For more information please visit www.roslandcapital.com.  

About Jeffrey Nichols  

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years.  His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.  

SOURCE Rosland Capital 

Investors have turned to gold ETFs since the economy has been in uncertain times.  They offer a great way to protect you against risk in your portfolio during uncertain times.  The SPDR Gold ETF (NYSE: GLD) is just one way of many to get involved in the gold market.  We have put together some other ETF options for your viewing below:  

LONG:  

The investment (GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.  

The investment (GDX) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.  

The Funds (GDXJ) investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Junior Gold Miners Index (the “Junior Gold Miners Index”). For a further description of the Junior Gold Miners Index, see “Junior Gold Miners Index.”  

The objective of (SGOL) the newly listed shares is to reflect the performance of the price of Gold bullion, less the Trust’s operating expenses. The Trust is open ended and is designed for investors who want a cost-effective(1) and convenient(2) way to invest in Gold as well as diversify their Gold holdings.  

The investment (UGL) will seek to replicate, net of expenses, twice the performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.  

The investment (DGL) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold Excess Return. The index is a rules-based index composed of futures contracts on gold and is intended to reflect the performance of gold.  

The investment (DGP) seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.  

The objective (IAU) of the trust is for the value of its shares to reflect, at any given time, the price of gold owned by the trust at that time, less the trust’s expenses and liabilities. The trust is not actively managed. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. The trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act.  

SHORT:  

The investment (DZZ) seeks to replicate, net of expenses, twice the inverse of the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.  

The investment (GLL) will seek to replicate, net of expenses, twice the inverse daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics inverse to the index. It may employ leveraged investment techniques in seeking its investment objective.

Related posts:

1. Jim Ross Talks About Another Great Year Ahead For The Gold ETF (GLD)
2. Silver poised for biggest monthly gain in 22 years; gold rises (SLV, GLD)
3. Is The SPDR Gold ETF The Reason Behind The Massive Rally In Gold?

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