Fundamentals for Gold Unchanged as Economic Uncertainty Rises


Fundamentals for Gold Unchanged as Economic Uncertainty Rises

By Hard Assets Alliance Team

By Justin Spittler, Hard Assets Alliance Analyst

With fear and volatility gripping the financial world, many investors find it puzzling that gold—history’s most trusted safe-haven asset—has yet to rebound. Following the Fed’s taper pump-fake and Obama’s appointment of Janet Yellen as the next Federal Reserve Chairman, the ingredients for higher gold prices are in place. What seems to be missing is positive investor sentiment.

In past musings, we have examined the Eastern world’s burning love affair with bullion by pointing to record-setting imports and sky-high premiums for physical product. The story is a little different in the West, where widespread skepticism has kept a lid on gold.

Gold ETF Outflows Slowing: A Signal of Change in Investor Sentiment?

As most of you are probably aware, 2013 has not exactly been a year that gold funds will want to remember. SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU) are both down nearly 25% for the year. Along with the rest of the gold ETF bunch, GLD and IAU have bled assets profusely. Both funds rank among the top-ten worst-performing ETFs in terms of outflows. With that said, there are positive signs that the worst of the selling may be behind us.

According to ETF Securities, net outflows for gold ETFs slowed to $4.2 billion last quarter after redemptions hit $19.6 billion during the second quarter. Gold ETF holdings now stand at roughly 29 million ounces, which is on par with 2010 levels but well off the 43 million ounces held by gold funds at the end of 2012.

Does this significant slowdown in outflows mean that the weight of negative investor sentiment is lifting, bringing brighter days ahead for gold? Oliver Ludwig, managing editor of IndexUniverse, says it’s too early to tell as the wide swings in ETF outflows over the past two quarters indicate high levels of general uncertainty. On the other hand, Adam Koos, president of Libertas Wealth Management Group, is encouraged by the recent consolidation and possible bottoming of gold ETFs.

Others are less optimistic that outflows will dry up any time soon, although not for the reasons you’re probably thinking. According to Brien Lundin, president and CEO of Jefferson Financial, gold is fleeing ETFs and heading East as part of the ongoing evolution in the global marketplace. That being said, Lundin doesn’t see ETF redemptions as necessarily being supportive or negative for gold from the perspective of supply and demand.

Although the mainstream financial media would have you believe otherwise, gold ETFs represent but one component of global demand. Nonetheless, the paper gold market, which also includes gold futures, remains highly influential in establishing the spot price and thus shaping public perception. Ultimately, however, the fundamentals will win out, and there is little reason to think that gold will not flourish when the consequences of burgeoning debt levels and reckless currency debasement can no longer be kept at bay.


Disclaimer

The Hard Assets Alliance website and the SmartMetals Investor are published by Hard Assets Alliance, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated, and there is no obligation to update any such information.

Any Hard Assets Alliance publication or website and its content and images, as well as all copyright, trademark, and other rights therein, are owned by Hard Assets Alliance, LLC. No portion of any Hard Assets Alliance publication or website may be extracted or reproduced without permission of Hard Assets Alliance, LLC. Nothing contained herein shall be construed as conferring any license or right under any copyright, trademark, or other right of Hard Assets Alliance, LLC. Unauthorized use, reproduction, or rebroadcast of any content of any Hard Assets Alliance publication or website is prohibited and shall be considered an infringement and/or misappropriation of the proprietary rights of Hard Assets Alliance, LLC.

Hard Assets Alliance, LLC reserves the right to cancel any subscription at any time. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Hard Assets Alliance publication or website, any infringement or misappropriation of Hard Assets Alliance, LLC’s proprietary rights, or any other reason determined in the sole discretion of Hard Assets Alliance, LLC.

Affiliate Notice: Hard Assets Alliance has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Hard Assets Alliance affiliate program, please contact us. Likewise, from time to time Hard Assets Alliance may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

© 2013 Hard Assets Alliance, LLC.

Leave a Comment