Gold Could Rally If We Go Over Fiscal Cliff

Gold is definitely not in a bubble, said Nicholas Brooks, ETF Securities’ head of research and investment strategy, recently. The yellow metal hasn’t experienced the typical exponential rise seen in the run up to the collapse of previous asset price bubbles. As long as countries have to tackle economic problems over the next year, Brooks predicts the price of gold will do well.

“Gold could rally if we go over the fiscal cliff,” said Brooks at the ETF Securities Annual Precious Metals Conference in New York. “There seems to be a growing view that gold may be one of the better hedges against the risk that a policy mistake is made and we go off the fiscal cliff.”

The fiscal cliff is the name given to the dramatic spending cuts across the federal budget that will go into effect January 1, 2013. This is the same day Bush era tax cuts expire, causing tax across the board to increase to the rates seen during the Clinton Administration. The big fear is that spending cuts and higher taxes will hurt the economy so much the U.S. will fall back into a recession. This could also spark another downgrade of U.S. debt by the debt rating agencies. While not good for the economy, such a situation would be good for the price of gold, he said.

Brooks said structural factors continue to support the gold price, especially behavioral changes among the world’s central banks. Prior to the second quarter of 2009, central banks were large net sellers of gold, selling between 10% and 15% of their supply. But in 2009 they became net buyers. Now between 10% and 15% of the annual supply of gold is being bought by central banks, a switch of 30 percentage points which is a net positive for the precious metal, he said.

He also pointed to central banks around the world, including the U.S. Federal Reserve, saying they will continue to increase liquidity until their economies recover.

“Low real interest rates and a decline in the real return on cash are enormously good for gold,” said Brooks. And if later in the year, “European sovereign risk concerns rise again, a relatively high probability scenario, the gold price has the potential to rally strongly, as it did last summer when Spain saw its bond yields rise sharply on growing fears it would not be able to finance its debt payments.”

The British-based ETF Securities says it launched the first exchange-traded commodity (ETC) in the world when it listed the Gold Bullion Securities in Australia and London in 2003. When the SPDR Gold Shares (GLD) launched in 2004, it was the first U.S.-listed ETC. Today, GLD, with $73.5 billion in assets, is one of the largest ETP’s in the world.

ETF Securities manages seven precious metal exchange-traded products in the U.S. The ETFS Physical Swiss Gold Shares (SGOL) and the ETFS Physical Asian Gold Shares (AGOL) each charge an expense ratio of 0.39%, one basis point less than the SPDR Gold Shares. ETF Securities’ other products track silver, platinum and palladium.

Homebuilder ETFs Surging; Silver Could See Rally

Reading List – a sample of what’s going on in ETF Land:

Homebuilder ETFs Surging This Year

Homebuilder ETFs have surged this year and could get a boost from reports on the U.S. housing market this week. The iShares Dow Jones US Home Construction (ITB) is the best-performing sector ETF year-to-date, surging 50% as of Friday, according to ETF Trends. The SPDR S&P Homebuilders (XHB) is up 36%.

Demand for Gold ETFs Rises as Metal’s Price Declines

Even though the price of gold is down 12% from its $1,900 peak a year ago, demand for gold bullion ETFs has continues unabated.

Sunny Days Ahead for Silver ETF

Hoarding of physical silver should give the iShares Silver Trust (SLV) a boost. In addition, commodity guru Jim Rodgers says silver is a better play than gold.

SuperDividend ETF’s Assets Hit $100 Million

The Global X SuperDividend ETF (SDIV), a high income equity ETF, has acquired $100 million in assets since launching little more than a year ago. A big reason is the fund’s 12-month dividend yield of 7.92%, one of the highest among US-listed dividend ETFs.

You Can Do Better Than Your Pension Fund

Seeking Alpha contributor creates an ETF portfolio that can easily outperform the San Francisco Employees’ Retirement System (SFERS), a pension fund recently told by a court to change its strategy.

Currency Hedge ETFs Win Big at Global ETF Awards

Deutsche Bank’s family of Currency Hedge ETFs won the award for the Most Innovative ETF in the Americas for 2011 at the 8th Annual Global ETF Awards. The awards are given to industry participants for outstanding achievements in the marketplace. In Europe Deutsche Bank tied with the Nomura Voltage Mid-Term Source ETF for the top prize, while the Motilal Oswal Most Shares NASDAQ-100 ETF was named most innovative in the Asia-Pacific region.

The five ETFs under the Currency Hedge banner:
db-X MSCI Brazil Currency-Hedged Equity Fund (DBBR)
db-X MSCI Canada Currency-Hedged Equity Fund (DBCN)
db-X MSCI EAFE Currency-Hedged Equity Fund (DBEF)
db-X MSCI Emerging Markets Currency-Hedged Equity Fund (DBEM)
db-X MSCI Japan Currency-Hedged Equity Fund (DBJP)

The Most Innovative Exchange Traded Product (ETP) in the Americas went to the iPath S&P 500 Dynamic VIX ETN (XVZ), while the db Physical Gold SGD Hedged ETC won in Europe.

Held at the Grand Hyatt Hotel in New York last Thursday, the Global ETF Awards provide a window on how the global ETF industry views itself. Unlike the Capital Link awards, where a small committee of analysts and industry insiders choose the winners, the Global Awards is voted on by the entire ETF industry. Here 520 organizations from around the world voted on who they think are the industry’s leaders and innovators. The awards and ceremony were created and run by the operators of exchangetradedfunds.com.

The evening began with a new prize, the Nate Most Award. Named after the man who invented the SPDR, the first ETF, it’s awarded to the individual who has made the greatest contribution to the ETF Market.

“We honored to be able to celebrate Nate’s place as the father of the ETF and to honor achievements in the ETF industry,” said Arlene C. Reyes, chief operating officer of exchangetradedfunds.com.

The first winner of this new prize was James Rose, senior managing director of State Street Global Advisors, for his commitment to the industry and for setting a standard of excellence. In addition to running State Street’s ETF business he serves as the first chairman of the Investment Company Institute’s Exchange-Traded Funds Committee.

“Nate Most created a product that created an industry and a great product for investors,” said Ross upon receiving the award.

Here is the list of other winners:

Most Innovative ETF Index Provider
The Americas – Dow Jones Indexes
Europe – STOXX
Asia-Pacific – MSCI

Most Widely Utilized ETF Research (Statistical)
Deutsche Bank won in all three regions.

Most Widely Utilized ETF Research (Analytical)
The Americas – Bloomberg
Europe – Deutsche Bank
Asia-Pacific – Deutsche Bank

Best ETF Market Maker
The Americas – Knight
Europe – Flow Traders
Asia-Pacific – Flow Traders

Most Recognized ETF Brand
The Americas – SPDRs
Europe – (Tie) db x-trackers and iShares
Asia-Pacific – China 50 ETF

Best Service Provider
The Americas – BNY Mellon
Europe – (Tie) Northern Trust and State Street Fund Services (Ireland)
Asia-Pacific – SSgA

Most Informative Website
The Americas – SPDRS.com
Europe – etf.db.com
Asia-Pacific – hkex.com.hk

Most Informative Website – Media
The Americas – IndexUniverse.com

ETFs End Rough 2011 Stronger

The Financial Times came out with a special report on ETFS today. It said the industry’s breakneck growth rate slowed as it faced adversity last year in the form of weak stock markets, and media hostile for the first time and “unprecedented criticisms from regulators.” And while net inflows of cash fell year-over-year, it still market a striking contrast to the “substantial net outflows” mutual funds saw on both sides of the Atlantic.

Even as investors sold moved out of stocks, especially in Europe, exchange traded products (ETPs) moved into the role of a risk reducer as they were used as a way to buy gold. Gold ETFs in Europe saw inflows of 730 million euros. So are this year, the SPDR Gold Shares (GLD) in the U.S. has seen inflows of $1.32 billion, compared with net outflows of $518 billion for all of last year.

Currency and Emerging Market ETFs Look Good for 2012

Since ETFs merely track asset classes or stock sectors, what works in ETFland is what worked in the markets in general. ETFs that tracked income producing dividend stocks, such as utilities and consumer staples, did very well, as did funds tracking U.S. Treasurys, oil and gold. Meanwhile, emerging markets took a big hit this year, as did alternative energy and natural gas.

In deciding whom to read on what will be the trends next year, I looked to the place with the most appropriate name, ETF Trends. Here are ETF Trends’ top five predictions and the ETFs to track these trends.

Currency ETFs: With more investors seeking to hedge currency risk, as well as use currency to make a bet on the Eurozone debt crisis, currency ETFs should see a lot of action next year.

Emerging Markets took a bath this year, mostly from surging inflation. But the truth remains that the biggest growth will be found in emerging markets. Of course, a lot of that growth comes from selling to Europe and the U.S. and if those two areas fall into recession, we could see emerging markets fall furthers. Still, the valuations have come a lot from their lofty prices at the start of 2011. With clean balance sheets and a rising middle class, emerging markets look attractive and even if they fall some, this is where the action will be in the coming years.

Bonds are still going to be winners. With the Federal Reserve promising not to raise interest rates for another year, we won’t see a huge sell off in U.S. Treasurys. And with more potential problems in Europe, Treasurys will continue to profit from investors looking for safety. But with yields so low, it may be time to put more money into corporate debt, or even emerging market bonds.

Commodities and the falling dollar: While the dollar has risen lately, the broader trend remains down. Meanwhile, as people worry about massive money printing in Europe and the U.S., gold will come back, especially the SPDR Gold Shares (GLD).

While gold and gold ETFs rallied in 2011, surprisingly gold miner stocks tumbled. Typically, you see leverage in gold mining stocks, with moves three to four times the same direction as gold bullion. With David Einhorn thinking “that there is a major disconnect between miners and gold prices”, ETF Trends says Market Vectors Gold Miners (GDX) and Market Vectors Junior Gold Miners ETF (GDXJ) will move sharply higher in 2012.

Recent Sell-Off Sets Up Next Gold Rally

When the price of gold plunged 20% last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally.

“I can tell investors don’t sell off your gold,” says Martin Murenbeeld, the chief economist at DundeeWealth. “We’re at a crossroads here.”

During the summer, gold surged 29 percent to a record high of $1,920 a troy ounce. This jump caused the price to drastically detach from its 200-day moving average, an important trend line in technical analysis that the gold price had closely hugged for much of the last decade. Technical analysts considered this jump unsustainable and in September gold gave back most of these gains.

Gold fell to a low of $1,534.49, much to the technicians delight, and it bounced off the 200-day moving average’s support level of $1,527. While most gold watchers expect the metal to experience turbulence during the next few months, the world hasn’t changed much, and gold prices may climb higher because of its status as a safe-haven during turbulent times.

“Have the countries around the world solved the debt crisis?” asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. “Have the bailouts ended? Have their currencies stopped tanking?“ With the world already worried about Greece’s fiscal problems, gold summer’s rally was sparked by fears that the U.S. might default on its debt.

After Standard & Poor’s downgraded the U.S. debt, investors flocked to gold as one of the few safe havens left. This raised the specter of recession, which is never good for gold. The combination of increased collateral requirements for trading with falling commodity and stock markets, gold tumbled as investors sold it for liquidity amidst a flurry of margin calls.

Still many analysts think the gold market isn’t in a bubble and that the run-up is far from over. Analysts say a bubble is when an asset goes up exponentially 15 to 20 times.

Gold is up seven times during the last decade. Since its low on Sept.26, 2011, gold has jumped 9 percent. Most analysts expect the price to retest September’s low during the next few months. If it bounces again that would be the buy signal.

Ed Carlson, Chief Market Technician at Seattle Technical Advisors.com says gold could fall as far at $1,460. But even Carlson predicts a new sustained advance will begin after Thanksgiving.

The fundamental factors for being bullish are also compelling. Low interest rates are very good for gold. In August, the Federal Reserve promised to keep rates low for the next two years. Additionally, most analysts expect the European Central Bank (ECB) to stem the European debt crisis with a flood of new money.

For the full story go to Reuters Money.

Full disclosure, I own shares of the SPDR Gold Shares (GLD) in my IRA. You should too.

Bounce of a Dead Cat

Both the Dow Jones Industrial Average and the S&P 500 have given back more than two-thirds of their opening rally by 11:30 a.m.

David James of James Investment Research says the fear gripping the U.S. stock market make conditions good for a rally, but he adds, “Unfortunately, the expected rally is unlikely to be the start of a new bull market.” In addition to concerns about the sustainability of economic growth, valuations are still to high. “Looking at the CAPE (Cyclically Adjusted Price to Earnings) ratio, we find most bull markets begin when one has to pay $10 or less in stock price to get $1 of corporate earnings. Today? One must pay over $20; too expensive.”

Graham Summers of Phoenix Capital Research says,”In plain terms, the market’s are in full-scale Crisis mode. While stocks have bounce hard temporarily the rest of the financial system is in a complete and utter panic.”

Even as the markets rise, so does gold. The SPDR Gold Trust (GLD) was up 2% to $184.

It’s a dead cat bounce, kids. And a good time to put in some shorts if you couldn’t last week.

Europe’s Financial Crisis Sends U.S. Stocks Lower

Fears over the state of European banks after the European Central Bank lent dollars to a eurozone bank sent European markets plunging and have started a huge sell-off in the U.S. One bidder borrowed $500 million from the ECB and the news suggests at least one bank is having problems getting the cash it needs, according to Financial Times and CNBC.

At Thursday’s close, the SPDR S&P 500 (SPY) tumbled 4.3% to $114.51.
The SPDR Financial Select Sector Fund (XLF) sunk 4.8% to $12.38.
The SPDR Technology Select Sector Fund (XLK) fell 4.9% to $23.08.
And finally, the SPDR Gold Trust (GLD) rose 1.9% to $177.72.

Last week regulators in Italy, Belgium, France and Spain banned short-selling of financial stocks in an effort to curb volatility and bring some order to markets. How is that working out for you? Meanwhile, it’s nearly impossible to get any numbers on the shorting of U.S. stocks or ETFs on short notice, I wouldn’t be surprised if investors were using U.S. ETFs to short the European financial stocks.

Meanwhile, here are 4 funds that measure global financial stocks.
iShares MSCI Europe Financials Sector Index Fund (EUFN), of which banks make up 52% of the portfolio, plummeted 8% to $16.68.
iShares S&P Global Financials Sector Index Fund (IXG) plunged 5.2% to $36.99.
SPDR EURO STOXX 50 (FEZ) dived 5.5% to $31.06.
iShares MSCI United Kingdom Index Fund (EWU) skidded 4.6% to $15.71.

Finally, the ProShare UltraShort MSCI EAFE Fund surged 9.7% to $28.75. With a ticker of (EFU), this is probably the most appropriate sentiment of the day.

9 ETFs Make Up 18% of Total U.S. Volume

Abel/Noser, an agency-only broker, released a market liquidity study for July saying ETFs dominated trading on the U.S. stock markets, with nine ETFs representing 18% of the total daily domestic volume, reports StreetInsider.com.

Those nine ETFs were: the SPDR (SPY), iShares Russell 2000 Index (IWM), PowerShares QQQ (QQQQ), iShares MSCI Emerging Markets Index (EEM), SPDR Gold Shares (GLD), UltraShort S&P500 ProShares (SDS), iShares MSCI EAFE Index (EFA), Financial Select Sector SPDR (XLF) and Direxion Daily Financial Bull 3X Shares (FAS).

According to the July ETF Report released by the National Stock Exchange today, the top five ETF providers in terms of volume, in descending order, are State Street Global Advisors, BlackRock, ProShares, Direxion and Invesco/PowerShares. Together, their share volume for the month of July was 27.6 billion shares, or 54% of the NYSE Group Volume in all stocks traded, 50.6 billion shares. This number doesn’t include Nasdaq volume.

In addition, Abel/Noser said six stocks accounted for more than 10% of the domestic principal traded. The six stocks: Apple, Bank of America, Citigroup, Microsoft, Exxon Mobil and Intel.

The top 105 stocks represented more than half of the day’s volume, says the study, while the top 975 names accounted for 90% of all the volume. The renaming 17,399 securities accounted for just 10% of the daily volume on the market. These numbers were little changed from June.

Entire ETF Industry at Your Fingertips

Have you ever wanted to see the entire ETF industry in one document?

Well, State Street Global Advisors, the people who bring you the SPDRs family of ETFs just sent out their quarterly ETF Industry Guide. It lists key facts on 897 U.S. ETFs in 43 categories, including expense ratios, net assets, inception date, 20-day average share volume and 20-day average dollar volume.

It says SPDR Barclays Capital International Corporate Bond ETF (IBND) is the first and only ETF to cover international corporate bond markets. Assuming you wouldn’t think of building a portfolio without overseas equity funds, is a portfolio truly diversified holding only U.S. fixed income investments?

Meanwhile, assets under management in the SPDR Gold Shares (GLD) rose to more than $52.8 billion in June, fueled by inflows of more than $1.6 billion during the month and $7.6 billion year-to-date. Average daily volume is now more than $1.9 billion.

For the full report click here.

Thanks to Pedro Ramirez for the email.