Gold and the corresponding exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), have been decent performers to start 2017 after stumbling late last year but familiar headwinds linger for the yellow metal.
Notably, those headwinds include the strong dollar and the Federal Reserve’s outlook for interest rates, which could include multiple rate hikes this year.
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.
In the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates as many as three times this year, gold prices could move modestly higher with some help from emerging markets, namely China and India.
“Should the value of the Dollar continue to rise and/or interest rates move higher, both factors are generally viewed as a negative for Gold price. Analysts who follow the movement of assets into and out of the Gold ETF’s note that we are still seeing an outflow from investors from the major Gold ETF’s, so it appears that market participants remain hesitant to shift assets back into Gold anytime soon,” according to Options Express.