Low inflation and higher growth keeps down GLD

The gold market continued to show a high level of volatility in the past several weeks. Nonetheless, SPDR Gold Trust (GLD) is nearly flat for December and only 1.2% during 2014. But the ongoing low inflation and signs of recovery in the U.S. economy are likely to further drive down GLD over the coming months.

This week didn’t offer a whole lot of news items but there were two reports that came out from the Bureau of Economic Analysis: the final update on the U.S. GDP for the third quarter and the PCE monthly update.

On the one hand, the GDP growth rate was revised up again to 5%. The revision was from 3.9% back in the second estimate. Even after subtracting the change in private inventories, the growth rate remains at 5% — so the growth mostly came from private and public sectors. Part of this revision came from higher real nonresidential fixed investments that grew by 8.9%.

The recovery of the U.S. economy is step in the direction towards the FOMC raising rates next year, which is likely to bring further down the price of GLD.

Another issue to consider is the progress in the U.S. inflation: The recent PCE report showed that the core PCE annual rate slipped to 1.4%. The relation between GLD and inflation concerns is a close one and may have played a major role in progress of GLD.

The rest of this analysis is at Seeking Alpha

For more see: What are the advantages of GLD?