Gold Losing Its Luster?

Since the beginning of May, gold futures prices have traded in an increasingly narrower band. The highs are trending lower, while the lows are trending higher. Given the continuing concern over the Eurozone’s financial crisis, one might have expected a bit more enthusiasm for the yellow metal, to say nothing about its first cousin – silver – which last saw a futures price of $30 or more at about the same time.

But real negative interest rates on German bunds and some US debt are likely to be providing investors with an alternative in a period when preservation of capital is just as important as return on capital. The volatility of gold and silver prices can interfere with a good night’s sleep, but an inflation-adjusted bond with a negative interest rate offers enough peace of mind to allow a decent night’s slumber.

A lot depends on the relative strengths of the euro and the dollar. With the dollar adding strength nearly every day, gold in euro terms is gaining some ground. Again, though, it could be a matter of timing — holding onto gold until the euro begins to gather strength again can be a risky business.

The SPDR Gold Shares Fund (NYSEMKT: GLD) is down slightly today, -0.2% at $152.76 in a 52-week range of $148.27-$185.85. The iShares Gold Trust (NYSEMKT: IAU) is down -0.14% at $15.35 in a 52-week range of $14.87-$18.63. Volume is also very light, with GLD volume barely over 2 million shares traded just before noon versus a daily average of over 10 million shares. IAU volume is just 830,000 shares traded so far against a daily average of about 5 million shares.

The iShares Silver Trust (NYSEMKT: SLV) is down -0.5% at $26.07 in a 52-week range of $25.34-$42.78, with 2.8 million shares traded so far compared with a daily average of 12.3 million.

Paul Ausick