The modest recovery of SPDR Gold (GLD) in recent weeks came after shares of the gold ETF tumbled during the preceding two months. Despite this modest gain, GLD is still underperforming equities. Also, the rise in the gold to silver ratio may have driven more bullion bulls to silver or silver related investments such as iShares Silver Trust (SLV). Is GLD losing its appeal?
If you were to ask people what were the driving forces behind the staggering rally of GLD between 2008 and 2011, some may quote the FOMC’s policy, falling long term treasuries rates (this also partly relates to the FOMC’s monetary policy), higher risk of economic slowdown, and perhaps fear of inflation. This isn’t, by all means, the full account, but I will point out that risk of economic slowdown is something we could be facing again next year. This time, however, it won’t be mostly related to the U.S. but rather other leading economies such as China, Japan and EU. How does this all relate to GLD? Well, if the U.S. economy isn’t expected to slowdown, this is also likely to reflect in leading U.S. equities. If U.S. stocks keep recovering, this could play a role in reduce the appeal of GLD – a gold investment that is considered an alternative to equities in dire times.
The rest of this analysis is at Seeking Alpha