Gold ETFs and Inflation

November 19th at 6:30am by Tom Lydon

As global central banks speed up their money printing presses in an attempt to promote recovery, the prospects of further currency debasement will help gold exchange traded funds strengthen, with some anticipating a run up to $2,000 gold prices.

“We’ll take out $2,000, we’ll go higher,” Raymond Key, London-based global head of metals trading at Deutsche Bank AG, said in a Bloomberg report. [End of Year Outlook for Gold, Commodity ETFs]

Governments and centrals banks around the world are implementing stimulus packages and loose monetary policies to promote economic growth in face of global recessionary pressures and to hedge against a potential fallout from the ongoing European financial crisis.

“We’re still working out the excesses that we’ve seen in the past,” Jamie Sokalsky, chief executive officer of Toronto- based Barrick Gold Corp. (ABX), said in the article. “This takes time, and easy monetary policy is going to have to exist for some time.”

Consequently, the added liquidity will debase currencies and fuel inflationary pressures, which typically drives investors toward gold investments as a safe store of wealth.

“With central banks continuing to buy gold around the world and with the macroeconomic environment which is still there, the demand should remain very strong,” Sokalsky added. “We’re not going to see the reaction on the supply side to make up for that in the industry.”

Gold futures are currently trading at around $1,714 per ounce. Gold hit an all time high of $1,921.15 an ounce on Sept. 6, 2011.

“Gold out of all the metals will be the best performer,” Jeremy East, global head of metals trading and structured inventory product at Standard Chartered Plc, said in the article. “The biggest driver of gold will be the ETF.”

Barclays Plc estimates that gold ETFs will add 200 metric tons, or 4.6% of the total physical supply of 4,323 tons, of gold this year, compared to 175 tons in 2011. [Gold ETF Metal Holdings Rise on Investment Demand]

Some gold ETFs include:

  • SPDR Gold Shares ETF (NYSEArca: GLD)
  • iShares COMEX Gold Trust ETF (NYSEArca: IAU)
  • ETFS Physical Swiss Gold Shares ETF (NYSEArca: SGOL)
  • Powershares DB Gold Fund ETF (NYSEArca: DGL)
  • ETFS Physical Asian Gold Shares ETF (NYSEArca: AGOL)

For more information on gold, visit our gold category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.