GLD has shown that the Bears are wrong – SPDR Gold Trust ETF (NYSEARCA: GLD) –

GLD has shown that the Bears are wrong – SPDR Gold Trust ETF (NYSEARCA: GLD)


As I said at the beginning of October:

A popular call to gold during the last few weeks has been for the metal to suffer a cruel decline during the rest of the year. The reasoning is that in recent years, gold has fallen (sometimes precipitously) in the fourth quarter … I think the fourth quarter could surprise many who are currently asking for a decline. I believe that all these predictions are an opposite indicator.

Since the beginning of the fourth quarter, the SPDR S & P Gold Trust ETF (NYSEARCA: GLD) has basically not changed and has remained in a very narrow range during that time. The most that the metal fell this quarter was 1%, and the strong fall that many expected to happen this quarter has not yet materialized. The window is closing for the bears. There is still time for them to be right, but not much. If GLD has not declined precipitously in mid-December, then it is unlikely to accumulate in the last two weeks of the year.

  Graph GLD data of YCharts

So far this year, GLD continues to show solid profits, since it is almost 11%. It is an even better performance than 2016, as this bull market is gaining strength. Next year, I expect even higher yields for gold.

 Graph YCharts GLD Data

Looking at the monthly GLD table, it is difficult to see this configuration as anything less bullish at this time. The series of higher lows continues, the precious metal has remained above the highest level of rupture that finally exceeded at the beginning of this year, and the MACD has also been in positive territory since 2015 and tends to to go up. As I said before, here is a very long track for the bulls, and this movement in the sector is just beginning.

(Source: Schwab)

The next meeting of the Fed will provide a catalyst: for both Bulls And Bears

The next FOMC meeting is scheduled for December 12 and 13, and it is a fact that The Federal Reserve will increase the federal funds rate by another 25 basis points. If there is anything the bears have been working to their advantage at this time, it is the fact that GLD has decreased (sometimes aggressively) until all the recent Fed meetings where a rate increase was expected.

There have been four increases (every 25 basis points) since the Fed began normalizing rates in December 2015. During the two weeks prior to each of these increases, GLD has been consistently in the red, with December 2016 and March 2017 being particularly difficult for GLD. Although we are now less than two weeks away from the Federal Reserve meeting, the next 10 days definitely favor the negatives over gold. But this is the last hope for the bears to get a defeat to materialize in gold by the end of the year. If they can not make something happen here very soon, then they will have their backs against the wall, since the returns on GLD during the next month after these rate hikes have typically been very strong. The only atypical case was last June, when GLD was still struggling after the Federal Reserve raised rates by 0.25%. Although gold was finally able to recover, and at the beginning of September it rose 7% from the date of the June rate increase.

Date of rate increase Increase in the rate of federal funds % of gain / loss in GLD Two weeks before % gain / loss in GLD in the next month
] December 16, 2015 25 basis points -0.74% 2.52%
December 14, 2016 25 Basic points -2.49% 4.94% [19659022] March 15, 2017 25 Basic points -4.29% 7.43%
June 14, 2017 25 Basic points -0.12% -2.55% [19659034] It is likely that a rise in rates has a full price in the gold market, so you have to wonder how much really bearish there is. I do not ask for a gold increase in the next 10 days, but I do believe that no action is good for the gold bulls between now and the Fed meeting. This is about maintaining the form until the announcement date. If the gold remains stable, then at that point we could see some short hedges in the market.

How Goldman Sachs is still bearish with gold?

Obviously we do not need Goldman Sachs to tell us that valuations in both the stock market and the bond market are very expensive, but I thought I would share a recent note from them that is coming to the business news and I will also discuss some of their scenarios in terms of the result of this excess.

First, some Goldman quotes:

The average valuation percentile between capital, bonds and credit in the US. UU it's 90 percent, a historic high … Rarely has it been the case that stocks, bonds and credit have been equally costly at the same time, only in Roaring 20 and Golden 50s. While in the short term, growth could remain strong and valuations could continue to rise, they should become a speed limit for returns.

(Source: Bloomberg)

Goldman sees two possible scenarios to medium term: [19659041] "Low yields and high valuations persist as macrostatistics are stable, but there are less unforeseen gains from increases in valuations and less carry, as a result, returns are likely to be lower in the badets, result of the withdrawal of QE, higher term premiums and bond yields. "

  • " There is a negative material growth or an inflation / rate shock, or a combination of both, which causes a reduction in the 60/40 "portfolios. In this scenario, Goldman says, "a sharp rise in inflation could weigh on the valuations of badets" and result in "some downward reversal in valuations."
  • Goldman also has these quotes about inflation:

    "There will probably be a balancing act with slow growth and rising inflation … The worst result for 60/40 portfolios is high and inflation is rising, which is when both bonds and stocks suffer, even out of recessions. " And an increase in interest rates due to the increase in inflation "remains a key risk for multi-badet portfolios".

    Goldman believes that Scenario 1 is the most likely outcome. I believe that Scenario 2 will be what fits my predictions for the medium term.

    The fact is that with badets and the stock market increasing in huge amounts, there is a significant risk of an increase in price inflation. There is no way for inflation "data" to remain benign in this type of environment. the market increases, the higher this risk.

    The irony about this is that Goldman has been a bearish on gold for the past two years, even though the metal continues to increase in value. Taking into account that they believe that stocks and bonds are overvalued and that an "inflationary shock" could occur, one wonders how the bank could be negative in the gold sector.

    As a side note, Goldman is currently bidding on Scotiabank (NYSE): BNS) historical gold trading business (ScotiaMocatta). ScotiaMocatta is one of five banks that markets bullion in London's $ 5 billion-a-year gold market (which is the largest in the world). Maybe this is just a coincidence (since Goldman's commodity unit has been struggling and are looking to change it), but given the bank's warnings about a possible inflation shock, one has to wonder if they are positioning themselves for an increase in gold.

    Short Term Rates Spike – Performance Curve Flattens Even More

    Be patient when I debate what some might consider a boring topic of conversation, but for those who are positive with gold, it is very important.

    In recent months, the performance in the last 2 years increased by 50 basis points and now stands at 1.78% (which is the highest level since 2008). The next rate increase and expectations of further increases in the federal funds rate next year are causing short-term rates to rise.

    (Source: StockCharts)

    While the short end of the curve is rising, long-term rates have not moved higher. In fact, the performance in the 10 years is lower for the year. This is causing the spreads to narrow and the yield curve flattens out.

    (Source: Bloomberg)

    This has been a hot topic of debate lately, as investors are concerned about the reversal of the yield curve, which has been a reliable indicator that the recession is on the horizon. While the yield curve has not yet been reversed, the difference between the 10-year rate and the 2-year rate is the lowest since November 2007. If short-term yields continue to rise while the long end remains flat , then it could be a sign that a recession is imminent. However, I do not think this scenario will happen, and I hope that long-term rates will also increase soon.

    (Source: FRED)

    There are several reasons why long-term rates have resented rose, including the fact that investors are still seeking duration and the US Treasury announced that it will issue more maturities. short term.

    However, I think the underlying problem is that core inflation has been moderate, and few expect it to be a concern in the immediate future. There is simply complacency in the bond market at this time. But the moderate inflation data (PCE, PPI and CPI) that have been appearing in the last 6-9 months are only transitory, since single events have biased the short-term readings. In addition, current financial conditions are still extremely accommodating. Given that the economy and the stock market are in, it is very likely that core inflation will move more. The unwinding of the Fed balance sheet should also help to accelerate the curve. This simply is not an environment where long-term returns will remain under control.

    It has been my argument since last year that the Fed will continue to raise rates for the foreseeable future. Nor do I believe that the rates increase too aggressively, which some blame for the flattening of the yield curve. This only comes down to investors being ruined by low inflation and badume that it will remain that way.

    It is likely that the bond market is not prepared for what is to come. The chart below shows how the bull market is likely to be in US Treasuries. UU It has pbaded its peak and is finally beginning to renew itself. As cited in Bloomberg:

    "While everyone looks at the stock market looking for a bubble to burst, or stress for Europe, the real risk is probably complete chaos in the bond markets."

    (Source: Bloomberg)

    And that is when the True escalation in the gold market. Increased interest rates are not negative for the sector, as they point to an increasing inflationary pressure. The largest bull market in the precious metals space occurred when interest rates soared due to a rapid acceleration of inflation.

    Markets are ultimately prospective. why gold is rising for the second year in a row, and why bears have not been able to knock it down.

    So far, the negative points about the metal have not been correct. Any investor who has cut the gold in excess for the last 2 years has been on the wrong side of the trade. That has been the real rend.

    The Gold Edge

    I offer a premium service at Seeking Alpha called The Gold Edge. I believe that this strong increase in the gold market will continue in the foreseeable future. While we are in this increase, there will be a lot of volatility, which means many opportunities.

    If you want to read more of my thoughts, ideas and research on the gold sector, including companies that I think are the best positioned for huge returns in this bull market, you can subscribe here. Currently there is a free trial version of two weeks.

    Disclosure: We have no positions in any of the aforementioned actions, and there are no plans to start any positions within the next 72 hours.

    I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (which is not from Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

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