The Zacks Analyst Blog Highlights: SPDR Gold Shares, DB Gold Double Short ETN, Power Shares DB Gold Short ETN, AdvisorShares Gartman Gold/Euro ETF And CurrencyShares Euro ETF
Zacks Investment Research | May 24, 2016 09:30PM ET
For Immediate Release
Chicago, IL – May 25, 2016 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include SPDR Gold Shares (NYSE:GLD) (FXE ).
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Here are highlights from Tuesday’s Analyst Blog:
Gold Rally Fades: Buy ETFs on the Dip or Short
After witnessing its third consecutive annual decline in 2015, gold delivered an all-star performance in early 2016. A spike in volatility emanating from the Chinese market rout, overall global growth worries and nagging oil price declines to start 2016 brightened the safe haven demand for the yellow metal. Also, a soggy dollar in the wake of moderation in U.S. growth led this metal to see the best Q1 rally in 30 years (read: How to Trade in Gold ETFs After Robust 30-Year Rally?). Fed Hike Bets Dull Gold
When market watchers were almost sure about a delayed policy tightening in the wake of the threats to the stability of the U.S. economy, the latest Fed minutes hinted at the possibility of a June hike. This is because the U.S. economy came up with some stellar economic readings for the month of April and the global market upheaval eased a bit. Oil prices also hit a six-month high, signaling stabilization in global market investing.
Needless to say, speculation of a sooner-than-expected Fed hike boosted the so-far-struggling greenback and the optimism around gold investing, which bears no interest, started to drain. In fact, gold logged ‘the longest slump in more than two months’ recently on a stronger U.S. dollar. Gold now hovers around $1,246/ oz (as of May 23, 2016).
The Fed enacted a rate hike in December and two more rate hikes are due this year if everything goes well. Chances of a June rate hike jumped to 30% from 4% a week ago, as per Fed fund futures data.
Rising rate concerns always go against gold as evident from the previous returns of the largest gold bullion ETF SPDR Gold Shares ( How Well will Gold Mining ETFs Weather a Rate Hike? ). Higher Inflation = Fed Hikes = Higher Demand for Gold
Get The News You Want
Gold is often viewed as a hedge against inflation. Now with oil prices shoring up and several economies on the mend, global inflation should pick up. This is especially true for the U.S. economy. One of the pre-requisites of the Fed hike is higher inflation. So, if the Fed makes a move, there must be some noticeable uptick in inflation, which in turn is likely to boost demand for inflation-protected assets like gold. Demand Exceeds Supply: Gold demand grew 21% year over year in the first quarter of 2016, representing $1,199 per ounce (down about 3.8% from the current level) and by 3% for 2017 to $1,251. The bank expects prices to go up to above $1,400 in 2019. How to Profit via ETFs?
From the above discussion, we can say that gold prices will fall in the short term due to a surge in profit booking amid renewed Fed hike concerns. If this happens, investors can play the slump in gold via inverse ETFs like DB Gold Double Short ETN (Short Gold with These ETFs ).
Investors can also play AdvisorShares Gartman Gold/Euro ETF (FXE ) lost about 1.1% in the last five trading days (as of May 23, 2016).
However, investors can play gold bullion ETFs if things turn in favor of gold in the medium term. But chances of this are slim at the current level. Only inflationary pressure, a sudden global market crisis and a slow Fed could take gold higher.
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