Market Overview

A Holiday Catalyst For Gold ETFs

A Holiday Catalyst For Gold ETFs

Gold is one of this year's best-performing commodities. The SPDR Gold Shares (NYSE: GLD), the world's largest gold-backed exchange traded fund, confirms as much: it's up nearly 16% in 2019. 

What Happened

A variety of factors are boosting gold prices this year and prompting investors to embrace ETFs such as GLD and the cost-effective SPDR Gold MiniShares (NYSE: GLDM).

It's not just the Federal Reserve that's lowering interest rates. A slew of other global central banks are doing the same thing, depressing some currencies and making gold more attractive in the process.

And the world is awash in negative-yield debt — as much as $17 trillion by some estimates. 

With some bonds charging an entry fee, gold, which doesn't pay interest or a dividend, is more attractive to some investors.

Why It's Important

Another annual catalyst is now in play for gold and ETFs such as GLD and GLDM: the arrival of the Indian holiday Diwali, also known as the festival of lights. Diwali often sparks an uptick in gold imports to India, one of the world's largest buyers of the metal. 

“Gold tends to shine bright during the second half of the year as demand picks up,” S&P Dow Jones Indices said in a recent note. “It is estimated that Diwali accounts for approximately one-fifth of annual gold purchases in India —more than any other time of the year. Jewelers and gold coin dealers in India frequently see a spike of 20%-30% in sales leading up to the festival.”

Diwali comes against the backdrop of increased central bank purchases of bullion and amid expectations that the Fed could lower rates again this month, although the U.S. economy remains solid, with stocks resting near all-time highs.

“Gold is the second-largest import in India after crude oil, illustrating how important the country is to the global gold market and likewise how important it is for Indian consumers to appreciate the global supply/demand dynamics of gold,” according to S&P Dow Jones.

What's Next

Data suggest investors are taking some profits in GLD. After the ETF hauled in $6.04 billion in new assets in the third quarter, it has seen modest fourth-quarter outflows of $124 million. Since the start of the third quarter, GLDM has seen about $241 million in inflows and it recently became a $1-billion ETF.

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