As the markets digest a presidential election season and the eventual normalization of monetary policies, investors may turn to precious metals exchange traded funds to hedge against volatility ahead.
Maxwell Gold, Director of Investment Strategy for ETF Securities, argued in a research note that the presidential election could act as catalyst for reforms and economic stimulus to shift from monetary policy to fiscal policy, with the end result in increased spending and elevated inflation.
Consequently, investors may be facing increased uncertainty surrounding policy changes with a new president and administration, along with greater risks associated with unwinding of loose monetary policies.
“Based on this outlook, we see potential benefits for investors to utilize precious metals as core risk management tools and hedges against episodic volatility among financial markets stemming from these unintended consequences of QE,” Gold said.
Additionally, Gold believes the rising populism and accommodative monetary policies may support inflationary pressures beyond the current negative real rate environment and potentially support gold and other precious metals. He also pointed to seasonal strength as the expected strong monsoon rainfalls in India, a key gold consumer, may bolster local incomes and spur strong jewelry and retail investment demand, along with the festival season ahead.
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Silver will continue to ride on the coat tails of gold but may experience larger price movements. Moreover, the metal will find support from industrial demand, which has increased in both the U.S. and Japan.
Lastly, platinum and palladium will also benefit from positive spill overs from gold and silver in an extended negative real rate and range bound dollar environment. The improving global economy and stronger car demand, especially among European and Chinese consumers, will also drive industrial demand.
Investors can gain exposure to these precious metals through a number of physically backed ETF options, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.
For more information on the bullion market, visit our precious metals category.