GLD-Time to Turn Greedy as Everyone T

Turns Fearful

Investment Thesis

Time to enter gold is right

The price of SPDR Gold Trust (GLD) is down nearly 8% year-to-date and ~11% from its April 2018
peak. The sentiment for gold is quite bearish right now,
now and this seems like a good time to get into it.
Moreover, this is the seasonally
ly weaker period for the metal, which could give investors an
opportunity
nity to buy gold at low levels and hold it as a hedg
hedgee against economic uncertainty.

Historically, gold prices have

ve declined in the summer months, only to climb August onwards. This
also has to do with the seasonal pattern of demand. Physical gold demand from Asian countries
including India supports price thereafter.

Hedge against economic uncertaint

rtainty

Gold prices have not seen any significant gains year-to-date from volatility caused by US president
Trump’s uncertain and often mercurial policy changes. Moreover, it has not caught a bid as trade
concerns have escalated. The US dollar’s rally along with Fed’s
ed’s tighter policy stance has stalled gold’s
rally.

While USD has been gaining as a safe

safe-haven
haven asset as trade concerns heighten, a further escalation
could leave the greenback vulnerable. Moreover, markets seem to have priced in the policy
divergence theme
me and the rate hike trajectory by the Fed
Fed. This could mean a limited upside for USD
and even weakness going forward, benefitting gold.
Inflation is also creeping up as the US economy nears full-employment. The full impact of tariffs is
also expected to be inflationary. As the current trend of rising inflation is sustained, investors would
want to hold gold as an inflation hedge. Moreover, if inflation continues to accelerate and trade
concerns flare-up, Fed might have to go slow on the interest rates, which would be beneficial for
gold.

Budget deficits are also creeping up. In just the first nine months of the current fiscal year, deficits
have hit $607billion (16.1% higher year-over-year). As corporate tax receipts fall further due to tax
cuts, the deficits should soar even higher. The White House has acknowledged itself that the deficit
is growing faster than it had expected. As trillion-dollar federal budget deficit looms, US treasury
borrowings will rise. This along with higher cost of credit will impact the economy negatively.

Technical confirmation

The sentiment for gold has turned extremely bearish going by the latest positioning of managed
money. According to the commitment of traders’ (or COT) reports, large speculators have turned net
short on gold and have remained so for last four weeks. As per the latest COT report, the net short
position has reached a record high since current records started in 2006. Historically, whenever this
kind of net short position has developed, gold prices have rallied. In November 2015, for example,
when net short position emerged in gold, prices bottomed soon thereafter, and a rally ensued. The
SPDR Gold Trust (GLD) gained nearly 30% in the following seven months.

Catalysts
A faster-than-expected depreciation in the USD either due to escalating trade war concerns or better
economic data out of the rest of the world as compared to the US.

Slower-than-expected Fed rate hikes due to escalating trade tensions would be positive for the non-
income yielding metal.

Risks

• The inherent risk to the bullish thesis on gold is certainly more strength in the US dollar.
• A more aggressive monetary policy by the Federal Reserve
• Lack of physical gold demand manifestation in China and India even as seasonally strong
months of late August and September arrive