Gold prices and ETFs have traded in a relatively dull range around $1,700 an ounce since the summer sell-off, but that hasn’t shaken the faith of investors with a long-term bullish view on the precious metal.
Some investors and advisors allocate a small portion to gold as a hedge against inflation or another shock to the global financial system. Demand for gold from rising emerging nations and central banks is another factor supporting gold.
The largest physically backed gold ETF SPDR Gold Shares (NYSEArca: GLD) is flat for the week after rallying Monday following comments from Federal Reserve Chairman Ben Bernanke on unemployment and the U.S. economy. Bernanke warned that the economy is still vulnerable to a slowdown. [Gold, Silver ETFs See Bullish Options Action]
Gold prices and the U.S. dollar have been sensitive to the outlook for further quantitative easing from the Fed. Loose monetary policies from central banks have been a key driver of gold prices in the aftermath of the financial crisis.
Inflationary pressures are looming in many countries, including the U.S. Furthermore, higher oil prices would not only spark inflation, but hurt any potential economic recovery.
Gold has always been used as a hedge against inflation and also a safe haven in uncertain economic times. As macroeconomic uncertainty prevails in the U.S. and in Europe, gold prices could continue to climb higher. [Gold ETFs: Bullion or Mining Stocks?]
“Gold has lost about 8% this month, down from $1788 at the end of February 2012 to $1651 as of March 23, 2012, but it is still up about 5% for the year. Apart from the renewed optimism about the U.S. recovery and fading concerns about Europe; decline in demand from China and India also weighed on gold prices,” Neena Mishra for Zack’s wrote in a recent article. [Gold ETFs Rise to Test 50-Day Exponential Average]
Together, China and India are the two largest consumers of gold, creating 55% of jewelry demand and 49% of the total global demand for the metal. Gold demand is down this year in India due to the government’s policies to cut the country’s account deficit. The government doubled the import duty on gold and created a levy on unmarked jewelry. [Strategist: Why Gold ETFs Still Make Sense]
Other physically-backed ETFs:
ETFS Physical Swiss Gold Shares
Tisha Guerrero contributed to this article.
Full disclosure: Tom Lydon’s clients own GLD.