Disappointing May jobs data released last week arguably reaffirm the notion that gold and the related exchange traded funds, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), remain important portfolio diversifiers.
Not only that, but with many market observers believing the slack May jobs report means the Federal Reserve will not be able to raise interest rates this month or in July, gold ETFs could offer investors more upside as rates remain low.
Related: 16 Glistening Gold ETFs Investors Should Follow
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.
[related_stories]“Boris Schlossberg, managing director of FX strategy at BK Asset Management, believes gold is also headed for another rally, but its determinant won’t just be the dollar,” reports CNBC. “Schlossberg also points to China, a major gold buyer, as a key determinant of the precious metal’s future levels as the country’s yuan continues to weaken.”
The Federal Reserve previously signaled it would raise rates soon if the employment situation improved and economic data remained consistent with a pickup in growth.
Related: Low-Rate Environment Will Help Support Gold ETFs
With a Fed rate hike in doubt, precious metals-related assets surged Friday. An extended low-rate environment would help support gold, which pays its holders nothing and struggles to compete with yield-bearing assets if borrowing costs rise, as a more stable store of wealth, and a depressed U.S. dollar would also make USD-denominated gold cheaper for foreign buyers.
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.
Related: Bullish Forecast for Gold ETFs
“Gold has shown some signs of life this month after dropping in May following announcements of a possible summer Federal Reserve rate hike, and traders believe that the climb will continue and there’s one group of stocks that will be a key beneficiary,” according to CNBC.
For more information on the Gold ETFs, visit our Gold category.
SPDR Gold Shares
Tom Lydon’s clients own shares of GLD.