Recently, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products encountered some trouble induced by the Federal Reserve, but gold and gold ETFs remain among this year’s best-performing asset classes.
Some market observers believe this year could be just the beginning of another lengthy bull market for the yellow metal. 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.
Looking ahead, investors will be waiting on Wednesday’s minutes from the most recent Federal Open Market Committee meeting. If the FOMC minutes reveal a more hawkish Fed stance with an imminent interest rate hike, gold assets could take a major blow. Consequently, traders may consider short or inverse gold ETF options to hedge against a potential turn.
“Gold will likely soar to a record within five years as asset bubbles burst in everything from bonds to credit and equities, forcing investors to find a haven, according to Old Mutual Global Investors’ Diego Parrilla,” reports Ranjeetha Pakiam for Bloomberg.
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.