There were several ramifications from the Federal Reserve's decision not to raise interest rates last week—one of which was a solid rally by the precious metals in the wake of the non-decision. Exchange-traded funds that are backed by physical gold, like the SPDR Gold Trust (NYSEARCA:GLD), tracked higher right along with metal prices, rallying 2% in a matter of minutes during Thursday's trading session. It was on course for its best month since January.
Although ETFs are still paper shares of gold and are not the same thing as holding physical metal, the gold-backed funds do respond pretty sensitively to price movements in the real market for precious metals. As we will see, this can sometimes make gold ETFs an interesting play when traders target short-term price fluctuations.
Spot gold followed up its late-week surge on Thursday and Friday with a steep slide during Monday's session, paring those gains to trade in the $1,130/oz to $1,135/oz range on Tuesday. The gold price remains relatively low amid one of the worst commodity routs in recent memory and the needle hardly moving on inflation through 2015. Yet, between the broadly weak performance of the global markets and the potential for an imminent government shutdown in the U.S., the precious metals have retained their luster, so to speak, in comparison to most other raw commodities. For instance, there seems to be no silver lining in sight for the copper and crude oil markets, which are both trading at or near multi-year lows.
With this somewhat uncommon dynamic in place, it can be difficult to parse the long-term fundamentals from the short-term trends in the markets. This is especially true with precious metals, and is why the vast majority of precious metal investors are not attempting to "time the market," and instead of accumulating a strong hedge or backstop—a safety net or insurance policy—against market downturns by stacking gold and silver (and, to a lesser extent, platinum and palladium).
Platinum and palladium both sank on Monday, and could be in store for their worst two-day stretch since August, while the latter touched a new 6-year low.
Meantime, GLD's rally was snuffed out on Monday, when shares gave back all of their gains from the week previous.
Meanwhile, the Direxion Shares ETF Trust (NYSEARCA:NUGT), an ETF that tracks gold mining companies, was actually about 4.5% higher on Tuesday.
The news media cycle has been rather fixated on the potential for a government shutdown in the U.S. based around the partisan issue of defunding Planned Parenthood. While this sticking point may force Congress not to pass a spending bill that keeps the government running, one may assume that gold could get a short-term bump in the event of a shutdown. (The last government shutdown in 2013 lasted more than 2 weeks.)
For those who subscribe to this view, it may make more sense to snap up shares of ETFs tracking precious metals, as this would allow the shareholder to more quickly initiate as well as liquidate their position to match the short-term nature of the trend. In addition to GLD, the experts at ETFtrends.com also suggest looking at the iShares Gold Trust (NYSEARCA:IAU) and the ETFS Physical Swiss Gold Shares (NYSEARCA:SGOL) for quick in-and-out moves relating to gold.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.