The largest gold ETF, the SPDR Gold (GLD), has taken in $600 million in assets over the past month, according to XTF.com data through Nov. 21. It is a notable one-month movement into gold by investors, especially in light of the near-$3 billion move out of GLD year-to-date made by investors. So far in the fourth quarter, gold ETFs, including GLD, are up roughly 2.5 percent through Nov. 20.
“A lot of the factors that led to gold seeing little interest from investors are going to be reversing,” said Bart Melek, director and head of commodity strategy at TD Securities.
He expects a steady upward trend for the spot price of gold as central banks pump the break on quantitative easing and tighten monetary policy. He pointed to several other factors: Equities are not necessarily going to be the one-way bet (up) they have been for most of the decade-long bull market run, as volatility is back in a major way and many investors expect it to continue, or even increase. Another factor working against gold, the strong dollar, should start to reverse, Melek said. “We think gold will be over $1,300 an ounce by the final months of 2019,” he said.
Gold was trading above $1,220 per ounce on Wednesday. It began 2018 at a level above $1,300 per ounce. Gold prices have fallen roughly 10 percent since peaking in April as issues including the trade war with China, Fed interest-rate policy and a slowdown in overseas markets sent the U.S. dollar higher. The dollar hit a 17-month high versus other currencies last week.
George Milling-Stanley, vice president and head of gold strategy at State Street Global Advisors, said his firm’s SPDR Gold Trust (GLD) exchange-traded fund saw increasing interest from investors in October due to rising market volatility, with $472.3 million in inflows for the calendar month. The weakness in gold prices came after a summer of “exceptional strength in the equity markets,” he said. (The third quarter was a period of record-low volatility in stocks, with no trading session where the U.S. market moved by 1 percent up or down.)
Gold opened at $1,303.45 on Jan. 2., but a perfect storm of signals from the Federal Reserve and currency moves came together to drive gold down to a yearly low of $1,160.39 on Aug. 18. “After Powell came in, [the Fed] started to talk about a persistent cycle of tightening in the U.S.,” Melek said. “With employment and inflation at multidecade lows, the Fed began to raise interest rates, with two-year Treasury yields moving from 1.89 percent on Jan. 2 to 2.97 percent by Nov. 8.”
The Fed is approaching the end of its tightening cycle, and with stocks plunging, expectations for further rate increases from the market have come down. Other central banks, including in the EU, are starting to remove monetary accommodation and tightening their policies, Melek said, and these decisions could result in a weakening dollar.
“You had interest rates move higher, which worked against gold, and at the same time, that drove the dollar higher,” Melek said. As the U.S. dollar strengthened, highly indebted emerging markets countries had to repay loans in U.S. dollars. Instead of using resources to purchase gold, these emerging market countries, which are usually big buyers of gold, were forced to use those resources to repay loans, Melek said.
Milling-Stanley also sees the dollar headwind easing. “The dollar is looking a bit wobbly and so are equities, so the things that have been against gold for the past few months are turning,” he said. “I think the broad trend in equities will be flat to downward with occasional rallies, and I think gold will benefit from that as it has so often in the past,” he said.
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