With the fixed-income and equities markets swinging, investors may turn to precious metals exchange traded fund to hedge increased volatility.
“It would be wrong to conclude that the outlook for the gold market over the remainder of 2015 and beyond depends solely on the evolution of U.S. monetary policy, and that Fed tightening can only mean lower prices,” head of commodities research at Capital economics, Julian Jessop, said on CNBC. “What’s more, even over briefer periods, safe-haven demand and buying from key emerging markets can more than offset headwinds from developments in the U.S.”
Moreover, Jessop argued that gold demand could rise as investors hedge inflationary pressures and the Russian central bank bolsters its bullion stores to diversify away from U.S. dollars.
Investors are also shifting into gold. According to ETF Securities data, investors funneled about $5 million into long gold ETFs, such as SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL). Additionally, traders pulled $10 million out of short gold exchange traded products. [U.S. Economic Uncertainty Brings Out Gold ETFs’ Luster]
COMEX gold futures were trading around $1,179.5 per ounce Friday.
“Gold is still viewed as a very defensive safe haven asset, but I guess at the margin, that U.S. dollar strength has limited any upside,” director of research at ETF Securities, Martin Arnold, said in the article. “In the last week, we have started to see more inflows into gold, modest inflows, but that’s generally how it starts. We did see more optimistic positioning in terms of the flows, people taking their shorts off and adding to longs.”
Silver rebounded in May, including the iShares Silver Trust (NYSEArca: SLV), ETFS Physical Silver Shares (NYSEArca: SIVR) and PowerShares DB Silver Fund (NYSEArca: DBS). Silver was also the best performing precious metal last month, but it has somewhat pulled back since last month’s high. [Silver ETFs Outperform Other Precious Metals]
COMEX silver futures were trading around $15.85 per ounce Friday.
In a growing economy, silver may also look more attractive since the metal is used in many industrial applications, such as electronics and solar power.
“There are better opportunities in those cyclically exposed precious metals than gold,” Arnold said. “Buoyance in China is more beneficial for the cyclical precious metals such as silver and platinum and that sort of rising demand is going to be more beneficial.”
Additionally, platinum is another industrial precious metal used automotive catalytic converters. Platinum is trading around $1,095.9 per ounce, and the ETFS Physical Platinum Shares (NYSEArca: PPLT) has remained relatively weak so far this year.
“We don’t think platinum deserves to trade below gold for a sustained period,” UBS strategist Edel Tully said in the article. “That nearly everyone is bearish platinum right now should be a warning in itself that we may be nearing an inflection point.”
For more information on precious metals, visit our precious metals category.
Max Chen contributed to this article.