SPDR Gold Trust (ETF) is one of the most important ETFs out there, but its value has been far from stable so far in 2015. On Thursday, as the market waits for Janet Yellen and her team on the board of the Federal Reserve to announce their target interest rate, the instrument is heading lower.
Fed might change rates
Wall Street really doesn’t know what to think about today’s Fed meeting, and what to do about the SPDR Gold Trust (ETF) ahead of the news from Yellen and her crew. In a poll published by CNBC on Wednesday 49 percent of economists said they thought that Yellen would raise rates this time around.
That’s a plurality, but it’s by no means a foregone conclusion. No one knows which way the board of the Fed will swing the markets on Thursday, and what the result will be across the world in the coming weeks.
Adrian Ash, at BullionVault says that the Fed won’t change its tune this time around and gold will remain safe. In a report published on Thursday he said, “The US Fed will sit on its hands again at Thursday’s meeting. US Dollars will still pay 0% interest. The financial world will still be left drowning in money, with nowhere to put it for a decent return.”
That would mean stability for gold, but not everyone has Mr. Ash’s hope for a stable, liquid future. UBS reckons that a rate hike today is likely for three reasons. Samuel Coffin, Drew Matus, and Maury Harris, who wrote the report for the Swiss bank presented those reasons with the following:
“September has three advantages. 1) It offers a compromise between hawks and doves, getting one rate hike “out of the way” without committing the Fed to more. 2) It provides optionality for those who anticipate that more than one hike this year would likely be appropriate -10 FOMC members, or the majority of the committee, as of June. Though likely there are now a few less-. 3) It avoids any risks resulting from policy changes around year-end, when bank funding issues tend to become more complex.”
Betting on the SPDR Gold Trust (ETF)
Tighter policy should, in general, result in lower prices for gold. The massive loss in the SPDR Gold Trust (ETF) through 2015 has been a result of expectations that the Fed will soon raise rates and lower the relative value of the yellow metal.
There are a lot of other moving parts in the market, however, and as we’ve seen across the bond market in recent years, the behavior of both Wall Street and central banks have changed the fundamental relationship between a lot of market numbers.
Many of those looking to trade the SPDR Gold Trust (ETF) through earnings are going to lose out, but there’s no safe place to put money right now. The values of many assets are likely to be volatile in the wake of a Fed rate hike.
The SPDR Gold Trust (ETF) may be tempting for those seeking safety, but the index has lost more than 5 percent of its value since the start of the year. Gold has been well and truly scarred by the prospect of a rate rise, that may continue once the prospect hardens into reality.