Chart at Yahoo Finance
The SPDR Gold Shares (NYSE: GLD) dropped precipitously recently. Early word on the Street was that the move may have been exacerbated by a confluence of trading algorithms pushing institutional capital out of the security en masse, or that an important owner had been selling (Cyprus was suggested). Also, a sort of death spiral may have developed, propelled by selling in the ETF, which then in turn is forced to sell the commodity; this could have accelerated the decline. However, unlike those who are now boisterously opposed to gold, I’m suggesting such a trading anomaly seems to have created a special arbitrage opportunity for a commodity that has serious safe haven characteristics working in its favor this year and next. This belief is behind my view that the SPDR Gold Shares (GLD) should be bought now, because a better opportunity may not avail to leverage what should drive gold higher, and the GLD is an easy way to leverage it.
The SPDR Gold Shares (GLD) started decidedly lower at the turn of the year, as enthusiasm for stocks intensified. I’ve often talked about the importance of Washington D.C. getting out of the way of stocks, and the passing of the fiscal cliff and debt ceiling issues marked important all-clear signals for equities. Unfortunately, the government’s allowance of the expiration of payroll tax breaks is having important economic repercussions today that will cost investors before long, in my estimation. Still, up until now, capital has been flowing heavily into equity funds and out of money market funds and safe haven securities like the SPDR Gold Shares Trust and the iShares Silver Trust (NYSE: SLV).
The problem is that recently, economic warning signals have become too hard to ignore. Still, stocks have ignored them, though if one inspects which stocks have been rising it has been defensive names for the most part, especially dividend payers in the utility, consumer staple and healthcare arenas. I believe this is because portfolio managers have issue with putting money behind aggressive names given the real economic situation that exists today.
But capital flow fervor will not continue forever if the economic softness gets worse. I believe there’s a good probability of that happening, especially given the real impact of the Sequester spending cuts and the payroll tax break expiration, which the Fed estimates should have a 1.5 percentage point impact on economic growth this year. However, even the Fed left that adjustment out of its own forecast, increasing the possibility of a surprising GDP report or two this year. All these things support the safe haven, gold and the SPDR Gold Shares (GLD).
The events in Boston illustrated that gold is still a safe haven, because gold rallied Tuesday just like it did after September 11th, when equities collapsed. In the first two days of trading after 9/11, Goldcorp (NYSE: GG) (there was no GLD yet) rallied 7.1% while the SPDR S&P 500 (NYSE: SPY) fell 5.4%. The day after the Boston Marathon bombings, precious metals also rallied for the most part.
|Security||April 16 Change|
|SPDR Gold Shares (NYSE: GLD)||+1.1%|
|Market Vectors Gold Miners (NYSE: GDX)||-0.7%|
|iShares Gold Trust (NYSE: IAU)||+1.2%|
|iShares Silver Trust (NYSE: SLV)||+2.6%|
|ProShares Ultra Silver (NYSE: AGQ)||+4.2%|
Given that North Korea, in my estimation, will very shortly run several missile tests and possibly test a nuclear device, gold’s safe haven appeal should be reinforced that much more. Furthermore, given that the United States and Israel believe Iran could have a nuclear weapon capability sometime around a year from now, give or take a few months; and given the world’s preference of military confrontation over a nuclear Iran, gold should find further support. Finally, given that the central banks of the world have been aggressively increasing money supply, and that their credibility could come under serious question, there is all the more reason for precious metals to regain their ancient currency appeal. Thus, I believe gold has very solid support long-term, and the SPDR Gold Shares (GLD) seems to present a special opportunity today to leverage gold on the security’s recent extraordinary collapse.
The SPDR Gold Shares (GLD) fell 13% in two days on either the selling of a major owner or the confluence of algorithms pushing capital out of gold en masse, in my estimation. Given my expectations that gold will be reinforced as an important safe haven now, after Boston, and with a near-term nuclear or missile event possible in North Korea, and with the eventual confrontation of Iran; and while global central banks are placing their nations’ currencies in vulnerable position, I believe an extraordinary opportunity exists today in the SPDR Gold Shares (NYSE: GLD).
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