The SPDR Gold Shares (NYSEArca: GLD) and other gold-related exchange traded products are popular destinations for investors when market volatility spikes. However, gold itself can experience turbulence, but gold has recently been docile in the face of geopolitical events that usually would spur increased action in the yellow metal.
Elections in Europe, increasing tensions with North Korea and other geopolitical events have not stoked gold volatility as some commodities market observers would have expected.
“Price swings for the precious metal narrowed last month to the smallest in more than a decade, even with rising tensions between the U.S. and North Korea, political discord in Europe, and trade disputes fueled by Donald Trump’s America-first policies,” reports Bloomberg. “That’s a disappointment for investors who remember how gold tripled in value after the 2008 financial crisis or surged more than 50 percent in the months after the Iranian hostage crisis in 1979.”
Additionally, the Federal Reserve is aiming for more interest rate hikes next year, but other global central banks remain accomodative.
Looking ahead, the ongoing negative interest rate environment, with European and Japanese central banks cutting benchmark rates deeper into the red to promote growth, could push investors toward gold bullion as a more stable store of wealth.
“’ETF investors may help stabilize the market because they tend to hold assets longer than hedge funds and large speculators who are more likely to react faster to events, said Michael Blumenroth, an analyst at Deutsche Bank,” according to Bloomberg.
Gold ETFs have also been grappling with the surprising results of the U.S. presidential election. Investors widely expected gold to rally if Republican Donald Trump won the presidential election earlier this month, which he did, but that thesis proved incorrect. Democratic challenger Hillary Clinton may have actually been the preferred victor for gold ETFs because historical data suggest gold performs better when Democrats are in the White House.
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.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.