Physically-backed gold exchange traded funds (ETFs), such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), traded slightly lower Tuesday as investors sought other safe-havens amid a bout of market calamity.
However, GLD’s holdings are expanding to the highest levels in three years just gold and the ETF near important technical resistance. GLD and its aforementioned rivals are up about 21% apiece this year. Gold ETFs are benefiting from the dollar’s slump this year. A cheaper dollar makes gold more attractive to foreign investors and helps support the hard asset as a more stable store of wealth.
The World Gold Council also recently revealed that investment gold sales in mainland China, which consumes a fifth of the global gold supply, were up 25% in the fourth quarter of 2015 year-over-year while jewelry sales were down 1%.
With government bonds depressed due to the negative yield environment, fixed-income assets would be less effective at hedging market risks and may appear overbought in some areas – about 30% of high quality sovereign debt, or over $8 trillion, is trading with a negative yield and almost an additional 40% with yields below 1%, according to the World Gold Council.
Gold was depressed last year ahead of the Federal Reserve’s first interest rate hike in almost a decade. However, with the Fed signalling a more cautious monetary policy amid sluggish growth, gold is finding further support from a prolonged low-rate environment.[related_stories]
Nevertheless, if the Fed does hike rates, investors will have to look to real interest rates.
GLD “added almost 21 tonnes to the metal backing its shares Monday, reach 825 tonnes, the ETF’s largest size since mid-December 2013,” according to BullionVault. “The world’s largest gold-backed trust fund, however, yesterday expanded at the fastest 1-day pace since gold prices shot towards their all-time peak in August 2011.”