The Gold Market and Gold ETFs
Traders News Source 10-8-16
After the biggest slump in the prices of gold futures in a period of almost 3 years, the market stabilized. Gold futures for delivery in December declined by 0.1% to $1268.60 an ounce in the Comex in New York following a decline of 3.3% on the previous day. Prices are now down by 7.9% since the peak in July because the appeal of gold is being cut by the expectations for tighter monetary policy in the US and Europe. A gold trader in London said that the gold bull has been given a good scare, but that it is not yet dead. The price could drop to $1172 and there could still be a medium-term continuation of the upward move. Some experts believe that things will get worse before they get better and that prices are likely to bottom out at $1257 an ounce. The decline on Tuesday was in the wake of official comments by Federal Reserve Bank of Cleveland president Lauretta Mester and Jeffrey Lacker of the Richmond Fed. The European Central Bank policymakers appeared to have reached an informal consensus in the past month that asset buying should be curtailed when the decision is taken to end the program.
However, gold continues to be regarded as a safe haven and may even be enhanced because of the risks associated with the US presidential election in November and the talks concerning Britain and Brexit. One expert believes that gold could rally as quickly as it fell and the weak inflationary pressures may enable gold to reach its previous heights in price. A panel of 14 senior gold producers Followed by Bloomberg Intelligence showed extended losses and the index has declined by 10% this week. Despite the trend in gold prices, investors continue to hold ETFs and assets increased by 3.1 metric tons to 2036.5 t on Tuesday, which is near the highest level since 2013. The online trading platform BullionVault reported that trading on Tuesday was at the heaviest since June 14, which is the date on which voters in the UK chose to leave the EU and buyers outnumbered sellers by 7 to 1.
After falling for four consecutive days, gold continued to decline on 6 October and reached the lowest price levels in four months. The COMEX gold futures contract for December delivery fell 1.2% to $1,249.8 per ounce-the lowest level since June 8. The continuing fall can be attributed to the better than expected US economic data, such as consumer sentiment, ISM manufacturing data and initial jobless data. Experts believe that this increases the chances of an interest rate hike in the near term and pulled down gold prices. According to the data from the US Department of Labor, jobless claims fell by 5000 to 249,000 last week, which is the lowest level since April and the second lowest level since 1973. Gold ETF’s also dropped to a 4-month low and tested the long-term support since the increasing bets on interest-rate hikes brought down Gold ETF’s to the level of the long-term trend. There was a recovery in gold from the earlier decline on 7 October and prices were up 0.63% at $1,262.76.
The opportunity in gold mining shares
Gold mining shares have been big winners in 2016 especially the smaller producers though this fact has not been widely publicized. They have been outperforming gold bullion since the low point of January 20, 2016. However, it must be remembered that the early stages of bull markets show more than average volatility in price fluctuation showing large losses on some days and large gains on others. It can be expected that once this period of volatility passes, investors will probably be keen to buy at much higher valuations. Moreover, many gold shares have registered a drop of 20% or more, leading many self-proclaimed pundits to declare that gold mining shares have entered a new bear phase. However, because the market is difficult to predict. In the short term, investors should concentrate on their investments in 2017 or maybe in 2018.
Gold ETF’s Direxion Daily Junior Gold Miners Index Bear 3x Shares (JDST and Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG)
The Direxion Daily Junior Gold Miners Index Bull and Bear 3x Shares have the objective of daily investment results, before fees and expenses, of 300% or 300% of the inverse (or the opposite) of the performance of the MVIS Global Junior Gold Miners Index. This is a leveraged ETF which has the objective of seeking a return of 300% or – 300% of the return of the benchmark index for a single day. Leverage and inverse ETFs should be regarded as riskier than alternatives that do not employ leverage and unintended only for investors who comprehend the risk of leverage and are involved in active management of their investments. The target benchmark index
The MVIS Global Junior Gold Miners Index is a cap-weighted total return index covering only the last and most liquid small cap stocks, which derive at least 50% or more from gold or silver mining. Companies must have ADTV of $1 million, $250,000 shares/month and a market cap more than $ 150 million under which is limited to a maximum of 8% per company reviewed quarterly. As of June 30, 2016, the average market of the index was $1.01 billion and the median was $929 million. The top 10 holdings included the likes of B2Gold Corp 5.38 % and Alamos Gold Inc 4.97 % and the top index country weightings were Canada 64.91%, followed by the United States 11.46%.
The market price for these ETF’s are the prices at which they are bought and sold in the secondary market and they are designed to trade in line with the intra-day value subject to market volatility. ETF’s are generally popular because of liquidity, transparency, trading in real time and comparatively low fees. The liquidity refers to the degree to which buying or selling effects the fair market value and is mainly determined by the trading volume of the underlying securities.