With global equity markets volatile to start 2016, investors are searching for safe-haven investments, a scenario that is proving to be a boon for gold-related exchange traded products.
ETFs such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) tumbled last year as gold extended its bear market into a third consecutive years. However, those ETFs and others are climbing in 2016 and investors are renewing gold’s status as a safe-haven investment.
“Holdings in ETFs climbed 19.6 metric tons in the three days through Monday to 1,477.7 tons, according to data compiled by Bloomberg, the largest increase since January 2015. Assets rebounded from the lowest in almost seven years on Jan. 6. Investors had been selling gold on expectations that U.S. borrowing costs would rise, hurting the metal as it doesn’t pay interest,” reports Bloomberg.
Investors pulled $2.2 billion from GLD, the world’s largest bullion-backed ETF last year, after pulling $3.2 billion from the fund in 2014. Through Jan. 11, GLD has added more than $180 million in new assets on a year-to-date basis.
Gold futures and physically-backed ETFs were pressured last year amid speculation the Federal Reserve is preparing to raise interest rates, which has pushed the dollar higher. Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets.
Even if rates rose a couple basis points, the continued low rate environment is good for gold, which does not pay a yield and would struggle to compete with yield-generating assets when rates rise. Making matters worse for gold ETFs are expectations for soft near-term demand at a time of year when gold demand is usually strong. [Doubters in Gold Rally]