Gold exchange traded products, such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) struggled in the fourth quarter, but broadly speaking, gold was a solid idea during 2016.
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.
The Federal Reserve’s first interest rate hike of 2016 in December and subsequent speculation that three more rate hikes are on the way this year weighed on gold and other precious metals as the dollar rallied.
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.
GLD, the world’s largest exchange traded fund backed by holdings of physical gold, rose 8% last year while adding $7.35 billion in new assets. Only five ETFs added more new assets in 2016 than did GLD.