By Christian Magoon
CEO, Magoon Capital
Gold ETF products tracking the price of physical gold declined 3% for the week as stronger economic data in the U.S, the attraction of stock market returns and the disappearance of QE3 hopes teamed up against gold. The price of gold has now dropped below its 200 day moving average, a key metric that has been a signal for investors over the last two years to purchase gold. However as the global economic landscape is now arguably at its healthiest over the last few years, some believe that larger declines are in store for gold and the 200 day moving average level may break down. Here's the 200 day moving average chart from stockcharts.com using the largest gold ETF, GLD, as a proxy for gold.
And here is the one-year 200 day morning average chart showing more detail:
After a week of 3% declines physical gold ETF products have now gained a little more than 6% for the year. IAU , the second largest physical gold ETF, leads the group with a 6.3% gain year to date. Here's the performance grid of all physical gold ETF products.
Gold stock ETF products had a much more challenging week declining between 4% - 7%. The largest gold ETF, GDX, lost 6.22% and is now in negative territory for the first time this year. GDXJ, the leading gold stock ETF in performance throughout 2012, maintained its lead despite losing 5.32% for the week. It is now the only gold stock ETF in positive territory for 2012 with a 2.35% gain. Here's the performance grid of all gold stock ETF products.
Gold stock and physical gold ETF products have accelerated their performance slump that began in late February with gold stocks leading the way. Here's a performance chart showing the performance of GLD, GDX and GDXJ over the last few weeks.
Going forward there seems to be more consensus that gold will go lower than higher in the short term. For example, Bloomberg reported its weekly gold trader survey was the least bullish in two months. Over the longer term however, there appears to be plenty of sentiment that gold will consolidate and push towards the $1800 - $2000 mark by year end. Some believe Central Banks will step in to buy gold at lower prices and that improving economic conditions will translate into increased appetite for gold jewelry - the number one source of gold demand - later in the year. This past week Bloomberg reported:
"Prices are rising for a 12th consecutive year and will reach $1,897 by Dec. 31, according to the average of 14 respondents in a survey at the Bloomberg Link Precious Metals Conference in New York on March 13."
Still activity is picking up in inverse gold ETF and ETN products as investors look to take advantage of gold's recent drop. This coming week's speech by Fed Chairman Bernanke on the financial crisis could offer another catalyst for gold to trend lower.