Gold ETFs starts new year with gains

Market Vectors Gold Miners ETF (GDX) rose fractionally, following a 4.6% jump Tuesday. Market Vectors Junior Gold Miners ETF (GDXJ), edged down after a 5.7% surge the prior session. In the futures market, gold prices rose 0.6% to $1613.90 an ounce. It has rebounded from a three-month low last week.

Gold ETFs took investors on a wild ride in 2011. They lost their luster in the last three months of the year as investors liquidated holdings with gains to raise cash as fears over the European debt crisis swelled.

If the gold bugs are right, gold ETFs should regain their shine in 2012 owing to ongoing global financial worries.

Alan Rosenfield, managing director of Harmony Asset Management in Scottsdale, Ariz., with $50 million in assets under management, recommends buying GDX to hedge against falling currency values.

“Most major economies are seeking to weaken their currencies in order to stimulate their economies,” said Rosenfield. “This will lead to money printing, which will undermine trust in most currencies.”

Therefore, people’s appetite for gold as a hard asset or store of value should rise. But gold prices would weaken if a global recession leads to deflation, Rosenfield warns.

GLD ended 2011 with a respectable 9.5% gain even after falling 16% from its all-time peak and closing the year below its long-term 40-week moving average. It corrected 16% from its 52-week high from September.

By contrast the S&P 500 ended fractionally lower in 2011. It’s trading 7% below its 52-week high, which is technically stronger than gold.

Commodities on average fell 5.32% in 2011, according to Morningstar. GLD gained 20.65% annualized the past three years and 19.2% annualized the past five years. It’s outpaced the S&P 500′s 13.7% and -0.44% returns over the comparable periods. Commodities appreciated 12.3% and 4.3% annualized over the past three and five years.

GDX melted 16.1% last year while GDXJ crashed 34.1%. GDX returned 15.4% annualized the past three years and 5.8% the past five years. Technically, their charts look very weak compared to the market. They’ve corrected 19% and 39% from their 52-week highs, while the S&P 500 is trading only 7% below its 52-week.

GDX and GDXJ are both trading deep below their long-term, 40-week moving averages, which is very bearish. Meanwhile the S&P broke above its 40-week line Tuesday, a very bullish signal.
Courtesy:investors