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Is The Recovery Of GLD Underway?

Summary Shares of GLD have bounced back in the past couple of weeks. The recent depreciation of the U.S. dollar has helped pull up the price of GLD. Will the recent rally of GLD continue? Shares of the SPDR Gold Trust ETF (NYSEARCA: GLD ) have rallied in the past couple of weeks, following the disappointing non-farm payroll market and a weaker U.S. dollar. The gold market isn’t out of the woods just yet – even though some analysts already suggest the recovery of gold is underway – as the Fed is still on course to raise rates in the coming months, and the U.S. dollar may start to climb back up if future U.S. economic reports such as JOLTS and consumer sentiment show better-than-expected results. But for now, the gold market benefits from the current market conditions. The U.S. dollar isn’t picking up, for now The appreciation of the U.S. dollar during the first few months of 2015 came to halt. Although the gold market saw short-term gains during the first half of the year, it dropped between April and July. Since then, however, gold has remained relatively flat, as the U.S. dollar also remained relatively (compared to the beginning of the year) stable. (click to enlarge) (Source: FRED ) The hesitation of the FOMC in raising rates, and the lower-than-expected growth in non-farm payroll report helped pull up the price of GLD. The minutes of the last FOMC meeting also didn’t offer much input as to when the Fed plans to raise rates, or any new insight behind the Fed’s deliberations. But the main issue will remain the progress of the U.S. economy, including when it comes to inflation and labor. As for labor, the JOLTS report will be released this week, and may boost the U.S. dollar if it shows better-than-expected results. It may offset the adverse impact the NFP report had on the U.S. dollar. Nonetheless, the market isn’t convinced that the Fed is ready to raise rates. As of the end of the week, the implied probabilities of an October rate hike are below 10%, while in December, the odds are still nearly unchanged at 37%. And these odds suggest the market isn’t convinced that the Fed will raise rates. And in a recent interview, Federal Reserve Vice Chairman Stanley Fischer opened the door for a scenario in which the Fed may opt out from raising rates this year, as opposed to repeated claims that the Fed, including Chair Yellen , aims to raise rates this year. He stated that a rate hike is expected, but isn’t a commitment. As long as the Fed isn’t raising rates, the U.S. dollar may remain flat or even decline against other currencies, which will keep fueling the rally of GLD. But GLD isn’t the only way people invest in the yellow metal – some also consider buying coins. And the demand for coins seems to have gone up in previous months. Higher demand for coins? The U.S. mint experienced a rise in gold coin sales back in July-September. Since then, however, sales have gone down and are at among the lowest levels for this year, as presented in the following chart. (Data Source: U.S. Mint ) This is only a signal as to the changes in the physical demand for gold for investment purposes in the U.S. So far, the slow fall in gold prices in the past few months may have fueled a rise in demand for gold during the summer. I have pointed out in a previous article that total demand for gold declined in the second quarter. So even though this recent finding may signal (albeit it should be taken with a grain of salt, considering it’s not a complete account of the changes in the demand for gold coins on a global level – less than 10%) a modest gain in demand for coins during the third quarter, it’s still too early to determine if this means the gold market is tightening, and how this could affect the price of gold in general and GLD in particular. Final note The recent rally in GLD may not last long, especially if the U.S. reports including JOLTS and consumer sentiment show promising results. If not, the recent rally of GLD is likely to continue until other central banks boost their QE programs (ECB or BOJ), which will drive up the U.S. dollar, or until the Fed starts to drop stronger hints as to timing of the historic rate hike, which seems less likely to occur this year. As long as the Fed keeps pushing the rate hike to a later date, the price of GLD will keep seeing modest relief. For more please see: ” Gold and Inflation ”

Picking The Right Silver ETF

Summary Those who consider investing in silver could consider using silver ETFs. The major ones follow the price of silver by stocking up on the precious metal. Other ETFs and ETNs follow silver by using forward contracts. The silver market has seen better days, but some still think silver could recover in the coming years and reach its former glory. The main idea in investing in silver is either for hedging purposes or for those who think silver will go up in the future. Let’s quickly examine the developments in the silver market and the main ETFs representing it. Up to the beginning of 2013, the rising demand for silver was fueled by people and institutions investing in silver via, among other ways, silver ETFs , in part, due to growing fear of a possible spike in inflation driven by the Federal Reserve’s monetary policy – mostly consistent of near zero interest rates and quantitative easing — and the devaluation of the U.S. dollar. These fears haven’t materialized, up to now. In fact, inflation has come down in past year and the U.S. dollar has appreciated against major currencies. The slowly recovery in the U.S. economy, the shift in the Fed’s policy, rise in mine production and little change in silver demand in the industrial sector drove down silver prices in the past few years. Some still expect the silver market to recover in the coming years on account of growing demand for silver in the industrial sector or slower growth in production (on account of the current low prices). Others may need a silver financial instrument to hedge their silver inventory. One way to take a long or short position on silver is via ETFs. Why choose silver-focused ETFs over other available silver instruments? The other possibilities include buying physical silver, silver contracts or silver companies. Buying a stock of physical silver, especially for speculators, may not be the best options. Silver companies are also one way to go long on silver. In this category, investors could pick silver producers such as Pan American Silver (NASDAQ: PAAS ) or silver streaming and royalty companies such as Silver Wheaton (NYSE: SLW ). But there are three issues to consider: These companies may incur risk that isn’t related to the movement in the price of silver such as growing debt and cash flow strain; Silver companies don’t only focus on silver (after all silver is usually a byproduct of other metals); they also have other metals in their portfolio – in most cases gold and copper – and as such bullion companies’ stocks aren’t only impacted by the movement of silver prices. For the most part, silver is strongly correlated to gold, but this relation isn’t consistent over time; The stocks of silver companies are also affected by these companies’ growth in operations (or lack of it); so if they expand their business — stocks tend to rise and vice versa. This is another variable, which isn’t necessarily related to the changes in the price of silver. These issues don’t mean the option of going with a silver company isn’t a good play, but it may not suit your investment needs. With that said, let’s review some of the available silver ETFs for hedges, investors and speculators and the main difference among the ETFs. Investors that have a long term investment horizon wishing to go long on silver or those that need a hedge for the future price of silver — if for example you plan to purchase silver for your business (e.g. for industrial usage) at a later date and need to lock the current price of silver to avoid risk related to fluctuations in the future – could consider the iShares Silver Trust (NYSEARCA: SLV ). This is also the largest traded ETF in this space with a market cap of $4.8 billion. The ETF follows the price of silver by holding the precious metal – as of September 24, the ETF holds 318.2 million ounces. The only caveat is the management fee, which is 0.5%, one needs to pay for holding this ETF. And just in case you were wondering, since this ETF holds physical silver and doesn’t buy future contracts each month – as oil and natural gas ETF tend to do – there is no Contango or Backwardation that lead to roll decay to worry about. Another ETF that follows silver in the same way as SLV is Physical Silver Shares (NYSEARCA: SIVR ), which has a slightly lower management fee of 0.3%. But the ETF is also smaller with a market cap of $280 million and 18.4 million ounces of silver. For speculators with a short term trading horizon (usually daily) and suspect the silver market is heading up may consider ProShares Ultra Silver (NYSEARCA: AGQ ). This ETF follows twice the daily return of the silver. For those who think silver is heading down may use ProShares UltraShort Silver (NYSEARCA: ZSL ), which follows twice the inverse return of silver. Both of these ETFs use silver contracts (forwards) and don’t buy silver bars. Therefore, these ETFs may face roll decay issues related to Contango/Backwardation. These ETFs also have a compounding issue that affects the returns of investments (e.g. if the price of silver rises by 10% in the first day and another 10% the next day, then the total gain is 21% due to compounding). That’s why these investments are mostly for short term investments. It’s also worth mentioning that besides ETFs there are also Exchange traded notes or ETNs . ETNs are structured products issued as senior debt notes. They are based on the future contracts. ETNs are highly volatility, tend to be riskier than ETFs (due to debt risk), and are mostly considered for short term holdings. For a leveraged long silver position, the VelocityShares 3x Long Silver ETN (NASDAQ: USLV ) offers three times the daily return of a silver index (S&P GSCI Silver Index ER). For those seeking to go short over short period of time, VelocityShares 3x Inverse Silver ETN (NASDAQ: DSLV ) is one way to go. Since these ETN are leveraged, they also have compound issues as listed above for ZSL and AGQ as well as Contango/ Backwardation issues. It’s also worth reading these ETNs prospectus to get a better sense of their risks ( pdf ). These ETNs are also very small cap and may include a liquidity issue. The following table summarizes the possible ETFs and ETNs that are currently available with market share and fees. (click to enlarge) Sources: ETFs’ and ETNs’ websites. The above ETFs and ETNs offer an array of investment possibilities for investors, day-traders and hedgers. Based on your needs and outlook, you could utilize the above-mentioned financial instruments. (For more please see: ” Will Higher Physical Demand for Silver Drive Up SLV? “)

Will The Labor Market Bring Down GLD?

Summary Demand for gold has come down in the past quarter. Russia and China have recorded huge losses due to their purchases of gold in the past year. But the big question will remain what’s next for the demand for gold as an investment. It will all boil down to the Fed and the timing of raising rates. The price of GLD could come down in the short run, if the NFP report shows a stronger-than-expected gain. Even though the gold market hasn’t done well this year, shares of SPDR Gold Trust (NYSEARCA: GLD ) remained nearly flat in the past month. The Fed’s decision to keep rates unchanged, the rally of the U.S. dollar and the fall in long-term U.S. treasury yields in the past month have dragged the price of GLD in different directions. The demand for gold continues to fall with Russia and China recording huge losses for their gold positions. Nonetheless, demand for gold in ETFs such as GLD will keep falling if the U.S. economy shows signs of a recovery that will bring the Fed closer to raise rates. Russia and China, among the two largest buyers of gold in recent years, have caused these countries to lose around $5.4 billion, according to Bloomberg . Russia has increased its gold reserves by more than 10% since the beginning of year. But the ongoing fall in gold prices may lead these countries to curb down their purchases of gold. In any case, gold consumption continues to fall: According to the Gold Council, total gold demand declined by 12% in Q2 2015, year on year. Most of the drop in demand came from jewelry and bars. ETFs kept selling off gold. Further, GLD’s gold hoards fell by nearly 4% since the beginning of the year. Source of data: Gold Council Looking forward, the main event of the week will be the release of the non-farm payrolls report. In the past, this report (the difference between NFP jobs gains and market expectations) tended to move the price of GLD, as presented in the table below. (click to enlarge) Source of data: U.S. Bureau of Labor Statistics and Google finance Last month, the employment report presented a 173,000 gain in jobs, which was below market expectations. And still GLD prices slightly declined. This time, the market estimates a gain of 202,000 jobs. If the report were to present a greater-than-expected gain in jobs, this could result in fall in GLD prices. The report will be among the last three for the year. And they could bring the Fed closer towards raising rates in December. If the report presents another gain of below 200,000 in jobs and annual growth in wages – which is also a concern for the Fed – remains in the 1.9%-2.3% range, as it did in the past year, the odds of raising rates will keep falling. For now, the implied probabilities for a rate hike in October remain very low at 11%; for December the probabilities are only 35%. So the market remains unconvinced about the Fed’s intent to raise rates, despite the recent speech Yellen gave, in which she stated again that she and her colleagues at the FOMC expected to see a rate hike this year. The gold market remains stagnant, as the market isn’t convinced what’s up ahead for the Fed’s policy. The U.S. dollar’s recovery, which, in part, relates to the grim global economic outlook, is keeping down the price of GLD. But, as the Fed delays its rate hike, the gold market stays put for now. If we were to see stronger-than-expected jobs report, however, the tides could turn and the odds of a rate hike could rise, which may fuel additional selloff in gold. For more, please see” GLD Continues to lose its appeal ”