Gold and ETFs, such as the SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM), experienced some tribulations earlier this month, falling in unison with equities as the U.S. dollar emerged as the world’s de facto safe-haven assets.
However, bullion’s recent slide doesn’t diminish the allure of GLD and GLDM. Not when the world is awash in low and negative interest rates.
With the Federal Reserve slashing interest rates to zero percent, cash might be king, but gold is certainly vying for that crown as a more suitable safe-haven asset. The effects of the coronavirus are no doubt weighing on the minds of investors. Likewise, the central bank responded in tow by bringing rates down to zilch and dumping an epic $700 billion worth into quantitative its easing program.
“This isn’t the first time gold has joined stocks during times of extreme market duress,” reports InvestorPlace. “It also happened during the Great Recession. But there remain compelling reasons to own gold, including global central banks’ insatiable appetite for bullion. Last year, central bank bullion buying hit a 50-year high thanks to the likes of China, Russia, and Turkey, among others.”
Central Bank Help
In various forms, central banks are a major catalyst for bullion. For gold and ETFs such as GLD and GLDM, the good news is that central banks around the world are debasing currencies, potentially making hard assets more attractive in the process.
“Indeed, negative rates around the world and a slew of central banks unleashing more easing are factors that could support gold in a slow-growth environment. Year-to-date, 30 central banks have cut rates and/or engaged in some form of quantitative easing,” notes InvestorPlace.
Beyond that, there is rampant central bank buying of bullion, potentially acting as a floor for prices of the yellow metal.
As the coronavirus outbreak continues to be the wild card in the markets, the safe haven of precious metals is in high demand, especially for exchange-traded funds (ETFs) that are backed by gold. ETFs have been stockpiling gold as more coronavirus news continues to invade the financial markets.
Additionally, slowing growth, which data points confirmed as having arrived, increases the case for bullion and related ETFs.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.