Few exchange traded funds (ETFs) have benefited from the weaker dollar and the Federal Reserve’s reluctance to raise interest rates this year on par with the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL).
However, that does not mean gold and gold ETFs are not drawing criticism. Actually, there have been plenty of naysayers as the aforementioned gold ETFs have notched stellar year-to-date showings. And with the dollar strengthening in recent days and expectations rising that the Fed will boost rates in June, there are some concerns gold ETFs could be vulnerable to near-term pullbacks.
Gold ETFs were 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. Nevertheless, if the Fed does hike rates, investors will have to look to real interest rates.
Some analysts still believe that is possible gold ascends to $1,500 per troy ounce. Gold bullion prices have surged almost 20% this year as the Fed previously signaled it would slow the pace of interest rate normalization this year – higher interest rates typically weigh on gold prices since the hard asset provide no yield and would become less attractive to higher-yielding conservative debt assets in a rising rate environment.