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5-Year Best January Opening for Gold: ETFs in Focus

Sanghamitra Saha
Benchmarks closed in negative territory on Thursday following concerns over a likelihood of a government shutdown

Gold prices kicked off the New Year in great fashion, logged the best January opening since 2013 andtouched its highest since late September. This move was a continuation of the year-end rally that led the precious metal to jump about 4.4% in the last three weeks of 2017.

Presently, gold prices are hovering around $1,300 an ounce. According to Mitsubishi analyst Jonathan Butler, "It is only the fourth time ever that gold has opened the year above $1,300." Geopolitical concerns related to North Korean premier Kim Jong-Un’s incendiary rhetoric as well as protests in Iran also led to gold’s recent gains as the metal is viewed as a safe-haven asset (read: What Does Kim Jong-Un's Speech Hold For Safe Haven ETFs?)

After faring better for the most part of the first nine of months of 2017, the metal started to falter from the fourth quarter. An upbeat global economy and hopes of tax reform in the United States marred the safe-haven demand of the metal. Plus, heightened prospects of a Fed rate hike boosted yields and the greenback. This in turn weighed on the non-interest-bearing asset like gold.

However, the slump was for a short while. Post Fed meeting, gold gained strength as the meeting was less hawkish than expected. Overall, gold bullion ETF SPDR Gold Shares GLD gained about 13.3% in the last one year (as of Jan 2, 2017) (read: ETF Winners & Losers Post Partly Dovish Fed Meet).

What’s in Store?

The greenback’s lack of strength can be instrumental in driving gold’s future strength. The U.S. currency dropped to a four-month low against the euro on Jan 2, as the economy in the Euro zone is also gathering steam (read: After a Stellar 2017, Will Euro ETFs Beat Greenback in 2018?).

Though the Republican tax bill has been passed, it is largely priced in at the current level and traders are still confused as to how much gains can be reaped from this tax reform by the economy, if we go by an article published on MarketWatch.

Bottom Line

As of now, the metal seems due for a rally. So, investors intending to profit out of the new-found optimism in the gold space may consider gold ETFs like GLD, iShares Gold Trust IAU and ETFS Physical Swiss Gold Shares SGOL.

For fatter returns, investors can also play leveraged products like VelocityShares 3x Long Gold ETN UGLD, DB Gold Double Long ETN DGP and ProShares Ultra Gold UGL. However, leveraged ETF plays involve greater risk.

Having said that, we would like to note that the journey of gold largely depends on the global economic growth momentum and how fast inflation gathers momentum. If these factors materialize meaningfully, gold prices may succumb to a slowdown. And if demand from the key-consuming nations like India and China look up and geopolitical tensions flare up, we may see gold prices marching higher.

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ETFS-GOLD TRUST (SGOL): ETF Research Reports
 
GOLD (LONDON P (GLD): ETF Research Reports
 
ISHARS-GOLD TR (IAU): ETF Research Reports
 
PRO-ULT GOLD (UGL): ETF Research Reports
 
VEL-3X LNG GOLD (UGLD): ETF Research Reports
 
DB GD 2XL (DGP): ETF Research Reports
 
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