2017 look ahead: gold ETFs

James Butterfill, head of research and investment strategy at ETF Securities, discusses how the gold ETF market is squaring up for 2017. Currently, he says, longs continue to outpace shorts on the gold ETF space.

Gold ETFs benefited in early 2016 from what James Butterfill, head of research at ETF Securities, said was a belief the world was going to fall into recession. That led investors to take positions which reflected the opinion that the US Federal Reserve would not be raising rates at anything like the pace the markets had been pricing in initially. 

He says this saw many opening long gold ETFs. However, as the year developed, and it became obvious recession was not the base case, the direction of flows became ‘puzzling’ because the long positions were not being unwound. James says that at the time there were only a small number of shorts being opened, even when the price of gold started falling as a result of the rise in the dollar. James says he felt this is because there is a lot of uncertainty being created by the election of Donald Trump to the White House.

James also says the uncertainty will continue into 2017 with elections in France, Germany and the Netherlands.

Using some of the fundamentals, James looks back in history and says that there is a similarity today to what happened in December 2015 when the Federal Reserve last raised rates - then sentiment deteriorated and gold fell. James says he would not be surprised if gold continued the recent downtrend, possibly falling, and ‘troughing out’ to the $1,070 level. He refused to be drawn on specifics, but said the trend going into the back end of 2016 looks like it may continue to run.

The big question is what will turn that around? James says he is witnessing short euro positions being opened against the dollar which gives him the confidence the recent rise in the dollar will impact on US earnings.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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