After stumbling through much of the first quarter, gold and bullion-related exchange traded funds have regained some lost luster, which has prompted increased options activity on ETFs such as the SPDR Gold Shares (NYSEArca: GLD).
Tuesday “as in in recent sessions, the GLD call buying has been driven by the idea that gold, as a safe-haven asset, could benefit amid the turmoil in currency and bond markets, says Rebecca Cheong, head of Americas equity derivatives strategy at UBS Securities. And since gold prices haven’t swung to the same degree as currencies and government bonds, that means GLD options are cheaper for investors looking to hedge, she added,” reports Saumya Vaishampayan for the Wall Street Journal.
Although options activity in gold ETFs is increasing, inflows to those funds are not. Since the start of May, GLD has lost $809.2 million in assets despite climbing 4.6%.
Some market observers argue that the Federal Reserve could push off on tightening its monetary policies. Consequently, without a central bank stepping in, inflation could begin to pick up, increasing gold’s appeal as a better store of value, especially in a low interest rate environment. [Gold ETFs Shine]
A prolonged low-rate environment would support gold prices as a tighter monetary policy typically strengthens the U.S. dollar and keeps inflationary pressures in check.
Gold has also been strengthening after the U.S. dollar depreciated against a basket of foreign currencies – consumers and investors are able to acquire more USD-denominated gold for less if the dollar currency weakens.
Central banks have been active buyers of bullion in recent years and are expected to purchase at least 400 tons of the yellow metal this year. Emerging markets central banks, including those in China and Russia, have been among the most active gold buyers.
“Central banks continued to be strong buyers, purchasing 119t in the quarter, the same volume as in Q1 2014. This was the 17th consecutive quarter that central banks have been net purchasers of gold as they continue to seek diversification away from the US dollar,” said the World Gold Council.
The first quarter was the 17th consecutive quarter in which global central banks have been net buyers of gold. [More Upside for Gold ETFs]
SPDR Gold Shares
ETF Trends editorial team contributed to this article. Tom Lydon’s clients owns shares of GLD.
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