Gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), were boosted last Friday following a disappointing March jobs report and after the U.S. launched 60 missiles against Syria.
Safe-haven assets, including gold, were favored after President Trump revealed Thursday U.S. Navy warships launched tomahawk missiles against a Syrian military installation believed to be the starting point of a savage sarin gas attack against Syrian civilians earlier last week.
Friday’s rally in gold brought the aforementioned exchange traded funds close to their 200-day moving averages and to year-to-date gains of just under 9%. Political risk is seen as a potential catalyst for gold and bullion-backed ETFs.
“According to a CNBC.com report, the markets gave up most of their gains Thursday when President Trump stated he is “willing to act alone on North Korea if China does not step up.” What’s more, Secretary of State Rex Tillerson did an about-face on Syria and stated Bashar Assad must be removed from power in Syria. The reversal in policy was based on reports of a sarin gas chemical attack purportedly by the Syrian government. This could turn out to be a big problem as Russia does not agree with Trump’s conclusion,” reports Seeking Alpha.
Gold’s recent bullishness is impressive when considering that the Federal Reserve raised interest rates earlier this month, setting the stage for two more rate hikes later this year. However, the yellow metal has been boosted by the dollar’s disappointing showing 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.
“Furthermore, the Fed chair’s decision to not increase the trajectory of rising rates incited a strong bid for commodities and foreign currencies after leaving the forecasts for future rate hikes in 2017 at two. I believe the Fed is playing it safe by maintaining such a dovish stance. This happens every time. The Fed always seems to tighten or loosen interest rates for long after they should have stopped,” according to Seeking Alpha.
Gold prices could move modestly higher with some help from emerging markets, namely China and India. However, the dollar has recently retreated in noticeable fashion, helping aid gold’s ascent along the way.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.