The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products have retreated in recent weeks, but some market observers believe those declines belie the gold market’s favorable fundamentals.
Global central banks, some of which are seen as key supporters of gold’s upside, remain buyers of the yellow metal. Actually, central banks have been diligently buying gold since the global financial crisis in 2008.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
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Higher interest rates weigh on gold and other hard assets as the commodity pays investors nothing and struggles to compete with yield-generating assets when borrowing costs increase.
“However, many are seeing this as a price correction, which may be a good opportunity for investors looking to add exposure to the yellow metal and build more favourable positions,” reports CNBC.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.