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Gold ETFs Continue to Inflict Maximum Frustration

NEW YORK (Fabian Capital Management) -- The gold market is reaching a point of maximum frustration in terms of forecasting future price moves.

The SPDR Gold Shares ETF (GLD) started the year by jumping out of the gate with a 15% bounce from oversold levels that lifted the spirits of many long-term investors. However, subsequent language from the Federal Reserve confirming the pace of tapering and interest rate policy led to a reversal of fortunes that has been slowly bleeding the price lower.

One of the more interesting changes in the price action of gold this year is that it has completely decoupled from stocks, bonds and currencies in terms of relative price action. It has not been viewed as a flight to safety or inflationary hedge, which has confounded many traders who like to glean an edge with respect to price trend.

More recently, the biggest drivers for intra-day jumps in both GLD and the iShares Silver Trust (SLV) have been geopolitical risk with respect to Russia and Ukraine tensions. However, with calmer heads seeming to prevail, those brief rallies rapidly fizzle in subsequent trading sessions.

Right now GLD is trading mostly sideways with its 200-day moving average flattening out considerably. This is indicative of an asset that has lost its way in terms of bullish or bearish momentum. In my opinion, the tightening consolidation is adding a level of frustration for investors that are looking for a break in either direction to confirm their trading bias.

Another interesting data point has been fund flows which slow very little net change in the total assets attributed to GLD since the begging of the year. According to ETF.com, GLD has lost $671 million in investor redemptions in 2014.

While that may sound like a large number to many exchange-traded funds, when you consider that GLD has $32.5 billion in total assets it represents a net change of only 2%. The weekly data show a tug of war between redemptions and inflows that has yet to attract significant new money.

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