SPDR Gold Trust (NYSEARCA:GLD) speeding down the gold slope
Gold investors are reshaping their decisions about the yellow metal. Today, its prices are at an all-time low of three years. On 20 June, gold breached the $1,300 an ounce mark. SPDR Gold Trust (NYSEARCA:GLD) and all other gold ETF’s without exception have been experiencing a downtrend. Last week, gold broke below the 50% retracement levels from the high that it experienced in 2011, which prompted more selling. Investors continue selling gold ETF’s and the price of gold has continued to drop.
The Fed fuel
Adding fuel to the fire was the news that the Fed might start winding down QE or its bond-buying program, before 2013 end. Gold has dropped sharply, while the dollar and Treasury yields headed northwards. In addition to the Fed announcement, the downslide in China has also weakened emerging asset markets. This is a definite negative for the price of gold.
So, why have people held onto the metal?
Over the last five years, a large number of investors have held gold to their heart and it is almost akin to a religious faith among many bulls. The belief is that QE must pretty much lead to a significant increase in inflation and many even fear hyperinflation. The fact is that 5 years after the Fed launched its quantitative easing, inflation across the world continues to slide. The core United States PCE deflator inflation has dropped to its lowest level since the first calculation of the series in the 1960s.
This rampant gold selling also tends to raise questions about future prospects for gold mining companies. Most companies are falling below the higher end of marginal production costs, so the debate in the market is about what the production response will be. Average production costs can range from $700-$900 per ounce. However, for some companies, exploration, marginal costs and sustainability take the costs over $1,000. This, in addition to all the external factors tends to make the gold market a highly volatile and unpredictable one. But the yellow metal has an allure that is hard to resist, and investors will rally back and forth with decisions about whether gold stocks are valuable enough to hold on to.