The SPDR Gold Shares (NYSEArca: GLD), the world’s largest exchange traded fund backed by physical holdings of gold, is up more than 11% over the past 90 days, but that is not the only good news revealed by GLD and rival gold ETFs.
After a couple of years in which investors dodged gold ETFs, causing massive outflows from GLD and rival gold funds, bullion ETFs are back in style in a big way. Entering Tuesday’s session, GLD had added more than $3.9 billion in new assets this year, making it one of 2016’s top asset-gathering ETFs.
Gold-related assets have been rallying as global volatility helped support safe-haven investments and a weakening U.S. dollar helped prop up the dollar-denominated hard asset. However, the precious metal is seeing prices fall off as investors dive back into riskier segments of the market.
Still, bullion’s bounce has not convinced all market observers that a sustained rally is in store. Although precious metals ETFs have recently displayed some strength, gold is still in a lengthy bear market, giving some traders pause about how much more near-term upside the yellow metal has in store.
“A rally in prices this month has the precious metal nearing a bull market for the first time since 2013 amid mounting expectations that Federal Reserve Chair Yellen won’t follow through on her forecast for raising U.S. interest rates further this year. The prospect of lower-than-expected borrowing costs — along with weakening equity and currency markets — is reviving gold’s appeal as a store of value,” reports Luzi-Ann Javier for Bloomberg.
Gold has been in a 3-year bear market, which has seen failed rallies on the back of various news events. Continued strength in the US economy and labor market has offset political and economic events since the Gold market turned bearish in 2013.
Gold is seeing greater support from safe-haven demand after currency devaluations across Asia added to investment demand for a better store of value than paper currencies or stocks and bonds.
“Slowing growth also is eroding the strength of the dollar, boosting the appeal of alternative asserts, including gold. And as the pessimistic outlook decreases the odds of increases for U.S. interest rates, which were near zero percent for seven years, bullion becomes more competitive against interest-bearing bonds. All that adds up to money pouring into the precious metals,” according to Bloomberg.
SPDR Gold Shares
Tom Lydon’s clients own shares of GLD.