GLD: An Important Commodities ETF at an Important Juncture

MarketsETF Trends

Commodity exchange traded funds have enjoyed greater investment interest this year as a recovery in oil prices and resurgence in safe-haven gold bets helped attract steady inflows.

According to BlackRock data, commodities-related exchange traded products attracted $27.7 billion in net inflows over the first six months of the year, compared to the $7.7 billion in net inflows for the same period last year and the total $12.0 billion in inflows for all of 2015. Year-to-date, the SPDR Gold Shares (NYSEArca: GLD), which tracks a basket of physical gold bullion, has been the most popular ETF play.

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The PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), which offers exposure to multiple commodities, has been a solid performer this year, too. Another name in the diversified commodities ETF group to consider is the iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG).

On the supply side, U.S. crude oil production is faltering, which has helped support crude prices. Moreover, the depreciating U.S. dollar has helped support demand for commodities as an alternative hard asset or a better store of wealth.

The U.S. dollar has previously rallied on expectations for a tighter U.S. monetary policy, which would diminish the amount of dollars sloshing around the economy and prop up the greenback against foreign currencies.

However, the widely followed Thompson/Reuters Commodity Index could be pointing to a retreat for commodities.

“From a very high level, it’s clear that there is a very ominous “large” head and shoulders topping pattern on the commodity index. This pattern has taken years to form, and is rare in size and stature. This pattern does not mean that a rally cannot take place… or even a pretty good one. But for that to happen, it must first re-take the dual resistance line marked at point,” according to Kimble Charting Solutions.

SEE MORE: Commodity ETFs May Experience Seasonal Weakness in September

Some oil market participants believe the recent price recovery was not fueled by fundamental factors but more of a result to short-covering and speculation over potential production freezes among Organization of Petroleum Exporting Countries and other major producers.

“What happens here appears to be pretty important for commodities and related economic assets (including equities). This is especially true when one considers that Central banks around the world are desperately trying to inflate the global economy,” adds Kimble Charting.

PowerShares DB Commodity Index Tracking Fund

Tom Lydon’s clients own shares of 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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