Gold ETFs Drop to 4-Month Low, Test Long-Term Support
Improving economic data has increased bets that the Federal Reserve could hike interest rates as soon as December pushed gold exchange traded funds down toward their long-term trend.
On Thursday, the SPDR Gold Shares (NYSEArca: GLD) fell 0.9%, iShares Gold Trust (NYSEArca: IAU) dropped 1.1% and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) decreased 0.9% as Comex gold futures declined 1.1% to $1,254.8 per ounce.
The three gold ETFs were testing their long-term support at the 200-day simple moving average on Thursday. However, technical traders may have also noticed that the gold ETFs were trading in oversold levels as indicated by their relative strength index.
The number of Americans applying for first-time unemployment benefits dipped toward a four-decade low last week ahead of Friday’s closely watched jobs data, the Wall Street Journal reports.
The strengthening employment conditions would support the argument for a Fed interest rate hike in December, which would diminish the appeal of hard assets like gold that struggle against yield-bearing securities when borrowing costs rise.
SEE MORE: Gold ETFs Retreat on Strengthening USD, Rate Hike Outlook
Precious metals have been under pressure over the past week as hints of an improving economy and a number of hawkish statements from Fed officials raised the prospect of a tightening monetary policy.
According to the Fed-funds futures market, options traders are betting on a 63.9% chance of a rate hike in December, compared to just below 60% a day ago.
The gold market may continue to weaken if the Friday’s jobs report reveals improved September payrolls.
“Traders are not eager to buy yet,” George Gero, a managing director at RBC Capital Markets, told the WSJ. “They want to see how the jobs numbers play out. I don’t think the selling is over.”
SEE MORE: Gold ETFs Could See Some More Downside
Meanwhile, bearish traders have been capitalizing the sell-off on inverse or short ETF options. For instance, the VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD), which tries to reflect the performance of three times the inverse or -300% daily performance, increased 2.8% on Thursday.
Additionally, investors bet against gold miners with bearish options like the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST), the Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST) and ProShares UltraShort Gold Miners (NYSEArca: GDXS). The Direxion options take the -300% exposure to large miners and junior miners, respectively, while the ProShares option take the -200% exposure to large miners and junior miners, respectively. On Tuesday, DUST surged 8.6%, JDST jumped 12.3% and GDXS advanced 5.9%.
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SPDR Gold Shares
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