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Taper Concerns Hit Gold, Emerging Market ETFs

Renewed concerns over a potential tapering of the Federal Reserve’s bond buying program, known as quantitative easing, downed a number of ETFs on Tuesday. President of the Atlanta Federal

Renewed concerns over a potential tapering of the Federal Reserve’s bond buying program, known as quantitative easing, downed a number of ETFs on Tuesday. President of the Atlanta Federal Reserve, Dennis Lockhart, stated that he believed a tapering “could very well take place” in December during an interview on Bloomberg radio. "I don't think the circumstances rule out a consideration in December," he said, stating that he believed it clearly had to be on the table during upcoming discussions.

Since the stay of execution in September, when the fed delayed tapering the stimulus program, more positive economic data has given rise to the belief that a taper is coming soon. In particular, last week’s jobs numbers, showing 204,000 jobs created in October despite the government shutdown, were way ahead of the 120,000 or so that many economists had estimated.

Several ETFs Decline in Heavy Trading

Among the big losers were ETFs tracking the price of gold and gold-mining companies. Gold, which is often traded as a hedge on inflation, traded down over 0.75 percent, with spot prices nearing $1,270 per troy ounce. This led to a more-than 1.25 percent drop for the SPDR Gold Trust ($GLD). However, the gold miner ETFs were the hardest hit, with the Market Vectors Gold Miners ETF ($GDX) plunging over 2.25 percent.

Emerging Markets Decline

Another potential consequence of a taper would be declining investment in emerging markets as interest rates rise, which led to a continued emerging markets sell-off on Tuesday. The iShares MSCI Emerging Markets ETF (EEM) is off by just under 1 percent Tuesday, bringing its decline since November 7, the day before the jobs data was released, up to just over 3.5 percent. The Vanguard FTSE Emerging Markets ETF (VWO) is also down, off just under 1.15 percent Tuesday and just over 3.5 percent since the 7th.

Some of this decline may also be partially attributable to the typhoon and its potential effect on Filipino equities. The iShares MSCI Philippines Investable ETF (EPHE) is off almost 5 percent since November 7. However, ETFs tracking several other countries were also falling, pointing towards the Fed's pending decision as the bigger culprit. The iShares Brazil Index ETF ($EWZ) plunged over 1.25 percent, putting it down over 4.5 percent since last Thursday, and the WisdomTree India Earnings Fund ($EPI) was down over 2 percent and just over 6.75 percent respectively over those same periods.