Rising dollar erases past gold gains for ETFs



How are gold ETFs doing?

The recent decline in gold prices was reflected in ETFs such as the VanEck Vectors Gold Miners ETF (GDX) and the VanEck Vectors Junior Gold Miners ETF (GDXJ). GDX declined ~9.5% and GDXJ fell ~14% since January 22, 2015. GDX was trading at $20.86 and GDXJ at $26.30 on February 11, 2015.

The decline was led by the rising dollar supported by an improving labor market in the United States. The rising dollar effectively erased past gold gains for ETFs.

A decline in gold prices also negatively affected the margins of gold producers such as Goldcorp (GG), Newmont Mining Corporation (NEM), and Yamana Gold (AUY).

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Investors at risk

More than $1 billion in fund inflow was seen from investors in January 2015 for GLD and GDX. This fund inflow led to the rally of gold and its ETFs until January 21. This was supported by Greece’s debt concerns and expected quantitative easing from Europe. Since then, gold prices declined owing to the rising dollar.

Talk of an interest rate hike by the U.S. Federal Reserve in 2015 is also fueling the decline in gold prices. To know more about the fundamental drivers of gold, please read Market Realist’s Investor Question: Gold Or Gold Miners?

In the meantime, let’s see what the charts say

According to the charts, there’s high volatility in commodity markets. Investors should trade gold and its ETFs cautiously. In the daily chart, support for GDX and GDXJ is at $19 and $24, respectively. On the upside, resistance is at $23 and $30, respectively.

Technical indicators such as the Relative Strength Index (or RSI) and moving average convergence divergence (or MACD) are trending lower, suggesting that these ETFs could trade lower.


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