Gold and the related exchange traded products, such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), have recently languished on intensifying speculation of an interest rate hike by the Federal Reserve and profit-taking.
However, a few minor bumps in an otherwise bullish road for bullion is not preventing some analysts from making overtly bullish calls on the yellow metal. Gold and gold-related assets, including miners exchange traded funds, fell after the release of the Federal Reserve’s July meeting minutes that revealed the U.S. central bank is comfortable with the idea of raising interest rates.
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However, it must be noted that the Fed did not give a specific timeframe for when it could raise rates again. As investors have already learned this year with gold and gold miners, the longer rates stay low, the better for gold-related assets.
“If you think of gold, the only way gold loses is if normal business and private sector cycles come back. If that is the case, gold goes back 100 dollars per ounce. The other outcomes, deflation, stagflation, hyperinflation are good for gold. If people become more confident, gold will ease back. But when the chickens come home to roost, gold will come back,” according to a Macquarie Group posted by ETF Daily News.[related_stories]
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.