Gold exchange traded funds have seen volatility pick up in the back half of 2011 due to speculation over more central bank easing, Eurozone debt worries and margin hikes on futures contracts.
Yet the precious metal is above $1,700 an ounce and gold ETFs are up 20% this year to trounce stocks.
A desire for safe havens and a weak U.S. dollar helped fuel the record runup in gold, which rose above $1,900 in September.
Currently, hoarding from central banks and monetary easing policies have helped bolster gold prices. [Gold ETFs Rise on Central Bank Buying, Liquidity]
“There is a twofold impact on gold from the joint policy response from central banks. First, a substantial increase in the demand for dollar swap facilities would mean further expansion of the Fed’s balance sheet, if lending is not sterilised, and would effectively be another form of easing,” UBS analyst Edel Tully said in a Financial Post article. “The downward pressure this puts on the dollar is clearly to gold’s benefit. Second, to the extent that the cheapening of dollar funding costs limits the possibility of a liquidity crunch, it is also beneficial for gold.”
Additionally, analysts expect gold’s appeal will continue to draw investments going into 2012 on a murky global outlook.