Are Gold ETFs Poised to Hit Record Highs?

Are Gold ETFs Poised to Hit Record Highs?

Low interest rates and a weak dollar are often positive signals for gold investors.

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Reviewed by: Mark Nacinovich
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Edited by: Ron Day

William Shakespeare's "The Merchant of Venice" gives us a financial reckoning for the ages: “All that [glistens] is not gold. And indeed, gold belongs in a category by itself. It remains a means of exchange and a rare commodity after thousands of years.  

Gold reached a bottom late last century when the Bank of England auctioned half the country’s reserves, sending the price to a low of $252.80. Since then, it has reached higher lows and higher highs, with every downside correction for roughly a quarter century a buying opportunity.  

The SPDR Gold Trust (GLD) was the first commodity ETF —and since its 2004 introduction, the most successful commodity product. At around $192 per share on Dec. 1, GLD has more than $57 billion in assets under management. It tracks gold’s price very well as it owns physical gold bars.

While other physical gold ETFs exist, such as the iShares Gold Trust (IAU) and the GraniteShares Gold Trust (BAR), IAU has less than half the assets and BAR’s assets were less than $1 billion as of Dec. 1. The GLD ETF glistens as good as gold.  

Central Banks Bought a Record Amount of Gold in 2023

Central banks, governments and monetary authorities bought a record-high amount of gold in the first three quarters of 2023. In 2022, they added 1,136 metric tons to reserves and 2023 buying could approach that level. The World Gold Council attributes this to “gold’s role as an inflation hedge, diversification benefits, and its performance during times of crisis.” 

Central banks validate gold’s role in global finance and individuals have bought in over the past months.  

GLD Inflows Since Early October 2023 

As GLD is the leading gold ETF, inflows or outflows indicate the markets’ appetite for the metal and sentiment about prices and the path of least resistance.  

GLD ChartSource: etf.com 

The chart shows $282.3 million flowed into GLD since the end of the third quarter 2023, a bullish sign for gold, which has rallied over the past months. The nearby COMEX gold futures contract closed the third quarter at $1,994.30. At $2,071 on Dec. 1, it had moved 3.8% higher.  

Gold Mining ETFs Tend to Provide Leverage

Gold miners invest millions to explore for and extract the metal from Earth’s crust. This yearslong process creates leverage when gold prices rally or decline.

Gold mining and exploration projects tend to forecast prices conservatively, and so profits often surpass above expectations during bull markets. Moreover, bull markets build a demand for mining shares to.

Over the past months, inflows into the senior and junior gold mining ETF products, the VanEck Gold Miners ETF (GDX) and the VanEck Junior Gold Miners ETF (GDXJ), highlight bullish price action and market sentiment.  

GSX ChartSource: etf.com 

More than $687 million has flowed into the GDX, senior gold mining ETF since the end of the third quarter.  

Source: etf.com 

 
More than $173 million has flowed into the more speculative GDXJ junior gold mining ETF since late September.  

Why Gold Will Hit Record Highs 

Three significant factors will likely push gold prices to all-time highs:  

  • Bonds have moved higher while the U.S. Dollar Index has declined over the past weeks. Lower interest rates and a weaker U.S. dollar are historically bullish for gold.  
  • The wars in Ukraine and the Middle East, and the bifurcation of the world’s nuclear powers, have created geopolitical turmoil. The Doomsday Clock at 90 seconds to midnight is the closest level to global catastrophe in history. Gold tends to rally during periods of worldwide division and uncertainty.  
  • Central banks have added to reserves. The potential of BRICS (Brazil, Russia, India, China and South Africa) to launch a gold-backed currency to challenge the dollar could increase gold’s global finance role. China and Russia have increased reserves as they buy on the international market and vacuum domestic gold production. China is the world’s leading gold-producing country while Russia is third. 

Meanwhile, worldwide inflation remains elevated, and faith and credit in the U.S. dollar has declined, given the more-than $33.8 trillion national debt.  

Gold ETFs Technical Levels Point to Potential Rally 

Active month February COMEX gold futures closed at $2,071 on, Dec. 1. On May 4, the February futures contract reached $2,055.70 per ounce, with the continuous contract rising to $2,085.40. Gold is closing in on a record high with short, medium and long-term trends higher.  

While the physical market for bars and coins is the most direct investment route, futures and the GLD, GDX and GDXJ ETFs will move with the metal over the coming weeks and months. I expect gold to hit new highs over the coming days and weeks.  

Meanwhile, new highs could cause a flood of buying and cause an upside price spike.  

Gold glistens in investment portfolios as its nearly quarter-of-a-century bullish trend keeps taking prices to new highs. For those thinking of jumping in, you might say the play’s the thing.  

Andrew Hecht is a Nevada-based writer and analyst covering stocks, bonds, foreign exchange, cryptocurrency and raw material markets. He has over four decades of experience in markets across all asset classes, concentrating on commodity markets. Hecht was a senior trader at Salomon Brothers in the 1980s and 1990s, running sales and trading businesses. In 2013, McGraw Hill published his book, “How to Make Money in Commodities."