Is the party over for gold? After investors flocked to the precious metal amid the pandemic sell-off, hopes on the economy reopening are feeding a risk-on sentiment again, which could prove to be a challenge for gold prices moving forward.
“We continue to think that positions are too crowded and that prices are too high to recommend re-entering longs,” ABN Amro precious metals analyst Georgette Boele wrote in a report last week, according to a Kitco news report.
ABN Amro is forecasting a considerable drop in gold prices as investor optimism returns into equities. The bank sees gold ending Q2 at $1,575 an ounce.
“We also expect a considerable drop in gold prices,” Boele said. “Between now and 3 months we expect another risk-off wave in financial markets. We think that investors will close part of their positions (ETF and/or speculative positions) in gold, silver, and platinum.”
One bright spot is the rising interest in gold-backed exchange-traded funds (ETFs), which have been seeing record flows as of late. These funds offer investors exposure to gold without holding the physical asset itself.
“Each time there has been some price weakness it seems that investors are buying gold on dips. Gold ETF positions have made a new record and stand just under 100 million ounces. After some liquidation of speculative positions, speculators have also showed renewed interest in gold,” he said.
For now, bearish traders can feast on the Direxion Daily Gold Miners Index Bear 2X Shares (DUST ). DUST seeks daily investment results before fees and expenses of 200% of the inverse of the daily performance of the NYSE Arca Gold Miners Index.
The fund invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets. The index is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver.
On the flip side, if investors are sensing a buying opportunity, they can look to funds like the popular SPDR Gold Shares (GLD ) and the more cost-effective SPDR Gold MiniShares (GLDM). For short-term traders looking for leverage can use miners to play gold indirectly via funds like the Direxion Daily Gold Miners Bull 3X ETF (NUGT ), VanEck Vectors Gold Miners (GDX ) and the Direxion Daily Jr Gold Miners Bull 3X ETF (JNUG ).