Gold ETFs Up on Tapering Fears; Higher Physical Demand

Jacob Harper |

While gold is still down for the year, a perfect storm of tangible events and intangible fears are causing the precious metal to regain some of the value it has lost in the year.

The widespread assumption concerning the US federal stimulus program is that it will be “tapered off” from $85 billion a month to $65 billion. When and if this happens, demand will increase and domestic investors will seek to stash their wealth in the yellow metal.

Physical demand abroad is also driving up the price of gold. While analysts had been concerned that China’s meteoric rise could soon wane, or even start crashing, the country has reported better than expected trade numbers, keeping demand for metals up.

India, which has been adjusting to widespread corporate reform and a fast devaluing rupee, is preparing to enter a traditional gold-buying season which should prop up demand. The Hindi festival Raksha Bandhan began on Aug. 20, usually a healthy time for gold buying in the country.

On Aug. 19 gold hit a two month high, largely correcting a 23 percent drop experienced in the second quarter of 2013.

Gold ETFs fared well on gold’s surge. Market Vectors Gold Miners ETF ($GDX) gained 3.53 percent to hit $30.26 a share. PowerShares Global Gold and Precious Metals ($PSAU) gained 3.42 percent to hit $24.48 a share.

On Aug. 20 the New York-based ETF sponsor Direxion reverse split several of its ETFs , including one of the most popular gold mining ETFs, Direxion Daily Gold Miner Bull 3x Shares ($NUGT). The 10 to 1 reverse split raised the price of NUGT from $8.70 to $87.70 a share prior to trading. The ETF gained an additional 10.06 percent on the day to hit $96.34 a share.

Gold is  up .50 percent to hit $1,372.60 an ounce.

(image courtesy of Flickr)

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