While gold and related exchange traded funds may have lost some of their luster in recent months, the precious metal may still serve as a suitable hedge against potential unknowns ahead.
“Gold may remain flat for 2018, but remains an attractive tool to hedge against potential market volatility and geopolitical risks,” Maxwell Gold, director of investment strategy at ETF Securities, said in a research note, estimating a base case of $1,250 to $1,300 per ounce.
Comex gold futures are currently hovering around $1,270.3 per ounce.
The world economy continues to expand as central bankers maintain massive stimulus programs. However, there are signs that developed markets are close to their cycle highs and are heading toward a period of slower growth ahead.
“While we think that the world economy will escape a significant upset in 2018, there remain formidable tail risks,” Gold said.
Specifically, Gold pointed to significant risks associated with stretched valuations in both equity and bond markets, along with potential negative consequences of an unwinding monetary policy. The strategist argued that this could lead to renewed appetite for alternative assets, such as commodities real assets and precious metals.
Looking ahead, with the economy continuing to expand, ETF Securities anticipates the Federal Reserve will likely hike interest rates three more times in 2018 to keep inflationary pressures in check. In a bullish case for gold, ETF Securities predicts gold could hover around $1,375 to $1,425 per ounce if inflation rises to 3.0%, the U.S. dollar only modestly appreciates and the Fed hikes rates twice in 2018.
Beyond rate hikes, investors may also experience potential risk-off events.
“Risks which may push demand for gold futures higher benefiting prices include continued sabre-rattling from North Korea; tensions between Saudi Arabia and Iran escalate; a disorderly unwind of credit in China; political populism and elections in Europe; and a spike in market volatility as yield-trades unwind,” Gold added.
In anticipation of potential risk-off events, investors may want to consider gold and other precious metals-related investments as a way to diversify a traditional stock and portfolio, 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 metals space, visit our precious metals category.