While the markets may be worried about the effects of a Federal Reserve interest rate, there are still a number of factors that can still support the gold market and bullion-related exchange traded funds.
On a recent webcast, A Golden 2016: Where Does Gold Go from Here?, Imaru Casanova, Senior Analyst at VanEck, argued that technical, macro, market action and fundamental factors remain supportive for a bull market.
For instance, on the technical side, a positive break-out from a long-term down trend is a bullish indicator. From a macro viewpoint, global central banks have devalued their currencies through loose monetary policies, political risks have increased safe-haven demand and mine supplies have peaked.
An increasingly large number of investors and advisors have taken an interest in gold in recent years. Recent market action revealed the strongest bullion ETP investment demand since 2009. In a survey of financial advisors attending the webcast, 55% of respondents revealed they largely hold gold to diversify an investment portfolio. A lesser number of advisors utilize gold as a way to store wealth, protect against inflation and gain capital appreciation.
Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well.
Moreover, Casanova believes real interest rates in the U.S. is falling, which may further bolster demand for gold. Gold has historically maintained value in a world of negative real interest rates.[related_stories]
Casanova pointed to the gold miners space as a good way to gain exposure to the gold market. Mid- to large-cap companies’ all-in sustaining costs are coming down, notably through deflation in equipment, materials and labor costs, along with weak local currencies and low fuel costs. The mining industry has also increased efficiencies through better management and overall improvements. Furthermore, companies show great free cash flow leverage to current gold prices.