Down 9.3% over the past month, the S&P 500 is on the brink of correction territory and other equity markets around the world are faring worse. Elevated market volatility is having the predictable effect of sending investors in search of safe-haven investments and the result, also predictable, is benefiting gold.
Exchange traded funds such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) finished modestly lower last week, but trimmed those losses by soaring last Friday as U.S. stocks tumbled.
Gold ETFs tumbled last year as gold extended its bear market into a third consecutive years. However, those ETFs and others are rebounding a bit 2016 and investors are renewing gold’s status as a safe-haven investment.
“In the past five days, investors bought 26.8 metric tons of bullion through exchange-traded products backed by the metal, the most since January 2015, according to data compiled by Bloomberg. Gold is one of the few commodities doing well, with prices up 1.3 percent so far this year,” reports Bloomberg.
Gold futures and physically-backed ETFs were pressured last year amid speculation the Federal Reserve is preparing to raise interest rates, which has pushed the dollar higher. Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets.