Gold ETFs Plunge and Part Ways with S&P 500

ETF Trends

SPDR Gold Trust (GLD) and other gold ETFs plummeted for the second straight session on Monday as the precious metal’s price dipped below $1,400 an ounce at one point.

Gold prices fell as much as 6% on Monday to under $1,400 for the first time in over two years.

“We are entering a phase of additional long liquidation by ETF investors and short-selling from hedge funds, which will continue in the foreseeable future,” Saxo Bank senior manager Ole Hansen said in a Reuters report.

Gold ETFs have also parted ways from the S&P 500 after exhibiting a close correlation with stocks for several months. Investors appear to moving away from gold as a safe haven and favoring stocks and hopes the global economy is improving.

The S&P 500 is up around 12% this year while gold prices have declined 10%, or over 20% from their record highs in 2011, writes Steven Russolillo for the Wall Street Journal. That was on Friday before Monday’s continued sell-off.

Looking at the chart of the SPDR Gold Trust (GLD) compared to the S&P 500, the two moved more-or-less in tandem up till the end of 2012.

The latest move in gold prices has some worried. Michael Shaoul, chief executive of Marketfield Asset Management, points out that gold is dropping toward its 150-week moving average for the first time since 2008.

“Our view is that unless the metal is able to establish immediate support around the $1,500 level (we would set the odds of this occurring around 50/50) the metal would be likely to travel a long way downwards before it finds the bottom of the current decline,” Shaoul said in the article. “Potential targets for a deep downside move would include $1,300, which would be a 50% retracement of the 2008-11 rally.” [Gold ETF Lowest Since 2011 as Key Support May Crumble]

Investors have been picking up gold as a hedge for the inevitable spike in inflation due to the Fed’s loose monetary policies. However, wholesale producer prices actually dipped 0.6% in March, sending gold futures lower Friday, reports Beth Belton for USA Today. Year-over-year, wholesale inflation increased 1.1%.

Additionally, some are attributing the lower gold prices to central bank actions in Europe, especially with Cyprus potentially dumping its gold holdings to raise cash.

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Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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