Amid speculation that another interest rate hike from the Federal Reserve is coming, perhaps as soon as next month, high-flying gold exchange traded funds, such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), have retreated in recent days.
However, that is not keeping investors away. 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.
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“The World Gold Council in its latest demand trends report showed ETF investors who’ve been stocking up on the metal right out of the gate in 2016 were behind the best ever first quarter for the metal and the second largest quarter on record after Q1 2009. The jump was entirely driven by investment demand which was 122% higher than Q1 2015 and increased three-fold quarter on quarter,” reports Frik Els for Mining.com.
[related_stories]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.
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Year-to-date, GLD is one of the top asset-gathering ETFs while investors have also poured money into IAU, SGOL and other gold products.
Demand for gold assets have surged this year. For instance, ETF flows into gold have expanded at their fastest pace since 2009. Physically backed gold ETF holdings are still one-third below the December 2012 peak, which suggest that prices can hold at about $1,200 per ounce.
However, emerging market demand for gold has not picked up yet. For instance, China has shown little demand, with the Shanghai Gold Exchange seeing little growth in volume. While the higher prices may have deterred Asian buyers, demand could pick up if prices persist in going higher, analysts said.
For more information on the Gold ETFs, visit our Gold category.
iShares Gold Trust
Tom Lydon’s clients own shares of GLD.