A weakening U.S. economic recovery and potential delay in the Federal Reserve interest rate hike help make gold and bullion related exchange traded funds a more appealing safe-haven play.
Gold prices are rebounding after the recent tumble. On Tuesday, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) were up about 0.4%. The gold ETFs dipped about 1.3% over the past week.
COMEX gold futures were up 0.4% Tuesday, trading around $1,193.8 per ounce.
Gold assets could experience greater safe-haven interest as lofty valuations in both stocks and bonds prompt some to hedge positions, reports Tatyana Shumsky for the Wall Street Journal.
Precious metals investors are pointing to the recent disappointing U.S. economic data as an impediment to any rapidly tighter U.S. monetary policies. Consequently, many expect only a modest rate hike, which could allow gold to remain competitive with interest-bearing assets, especially if inflation begins to bounce higher.
“Gold is still cheap relative to fixed income [assets]…gold could really pop and move,” Nicholas Johnson, a commodities manager at Pacific Investment Management Co., said in the WSJ article.
Investors who remain skeptical about the U.S. growth outlook believe that modest rate hikes are already priced into gold prices, so bullion could trade off rising inflation or potential shocks to the economy.
“Waiting for a strong pickup in the U.S. with the whole world struggling is a bit too enthusiastic,” Matthias Kuzinski, manager of commodities investments at Lupus Alpha Asset Management, said in the article. “Even if we got a small hike in the U.S., I can’t believe it will follow with more. A slow rate-hike cycle wouldn’t hurt gold in the long run.”