One of the biggest reasons investors have been flocking to gold exchange trade products, such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), this year is the perception of elevated market volatility. With this being a presidential election year in the U.S., that trend could continue, providing additional support for gold ETFs.
Gold bullion prices have surged 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.
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.
“While gold lovers believe prices will only go higher from here, others say a rally will only last if central-bank actions boost inflation, which has historically been positive for the yellow metal. Higher rates lift the opportunity cost of holding non-yielding assets such as bullion, while supporting the dollar, in which gold is priced,” reports Cecilia Jamasmie for Mining.com.[related_stories]
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.
Even with markets waiting for Asian demand for gold to increase, the charts paint an encouraging picture for gold and the relevant ETFs. Also helping the case is the massive amount of gold own by ETFs, such as GLD and SGOL, throughout the world.
Related: Bullish Forecast for Gold ETFs
“Others argue that a sustained rally may require current geopolitical tension and economic worries to stay in place. In the past week, however, concerns over economic stability have largely eased and risk appetite among investors has increased,” according to Mining.com.
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Tom Lydon’s clients own shares of GLD.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.