After Federal Reserve Chair Janet Yellen pushed off an interest-rate hike, gold related exchange traded funds popped Thursday, with bullion prices rising the most in five weeks.
On Thursday, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) gained about 1.3%. The gold ETFs, though, remain relatively flat for the year, rising 0.3%.
COMEX gold futures rose 2.1% Thursday, trading around $1,202 per ounce.
While the Fed will not hike interest rates in June, Yellen stated that an interest rate hike this year is not out of the picture.
“We could see more asset allocation in gold because Yellen sounded more dovish than the market expected,” George Gero, a senior vice president at RBC Capital Markets, said in a Bloomberg article.
Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets.
Additionally, the Fed’s views pressured the U.S. dollar, which typically strengthens on tighter monetary policies or higher interest rates. Consequently, gold and other commodities found support form the USD’s dip as a cheaper greenback makes USD-denominated commodities less expensive to foreign traders, MarketWatch reports.
However, gold price gains may have been capped Thursday after data showed U.S. inflation was well below the Fed’s target. The metal has typically been used as an inflation-hedge and safe store of wealth.
Some gold traders, though, remain skeptical. Without a defined or clear Fed interest rate hike schedule, gold can still experience volatility from rate hike speculations.
“Considering that the Fed has consistently over-estimated U.S. growth, and considering that they don’t have much of a buffer between current expectations and a negative growth number, there is plenty of room for a surprise to the downside,” Brien Lundin, editor of Gold Newsletter, said in the MarketWatch article. The “best thing for gold bulls may be to get the first rate hike out of the way” as the “ongoing when/if speculation only gives the speculators excuses to short the metal.”
Consequently, traders who want to hedge any further downside risk can still utilize inverse or short gold ETF options. For example, the ProShares UltraShort Gold (NYSEArca: GLL) provides a two times inverse, or -200%, daily performance of gold bullion. The Direxion Daily Gold Bear 3X Shares (NYSEArca: BARS) reflects the daily -300% daily performance of gold.
Alternatively, ETN options include the PowerShares DB Gold Double Short ETN (NYSEArca: DZZ), which tries to generate the twice inverse, or -200%, return of the daily performance of gold, PowerShares DB Gold Short ETN (NYSEArca: DGZ), which tries to reflect the inverse of gold price movements, and VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD), which tries to reflect the performance of three times the inverse, or -300%, daily performance.
For more information on the gold market, visit our gold category.
Max Chen contributed to this article.