The SPDR Gold Shares (NYSEArca: GLD) and the  SPDR Gold MiniShares (NYSEArca: GLDM) are among the brightest stories in the commodities complex this year and that ebullience is expected to continue into year end.

Worldwide holdings in gold-backed ETFs surged to 3,365.6 tons on Aug. 3, or up 30.5% this year, Bloomberg reports. This means that global gold ETFs now hold more gold than Germany’s reserves, but gold ETFs are still short of the official U.S. reserves numbers that exceed 8,000 tons.

Researchers at State Street Global Advisors say there’s a 40% chance gold rises to $2,200 per troy case with a base case scenario of prices holding around $2,000.

“This hypothetical scenario assumes a swift and successful economic reopening in emerging markets, triggering a strong rebound in jewelry demand in the region, but continued difficulties in reopening in the industrialized world, with the result that perceived safe-haven and investment demand would remain strong,” writes State Street chief gold strategist George Milling-Stanley in a recent report.

Catalysts Abound

Gold has been a popular play for investors to hedge against ongoing volatility, uncertainty, and inflationary risks. The coronavirus pandemic has ravaged economies and fueled heightened uncertainty, which has in turn helped support gold as a safe-haven bet. Meanwhile, the copious amounts of fiscal and monetary stimulus measures have inundated the markets with cash, fueling demand for physical assets like the hold that can help investors maintain their purchasing power.

“Debt levels in the US have risen dramatically as the Treasury and the Fed have sought to mitigate the impact of the pandemic, so the US dollar may weaken further,” notes Milling-Stanley. “This, coupled with growing concerns about the potential for inflation as a result of the unconventional measures, could provide ongoing support for investment and perceived safe-haven demand in the US.”

If inflation is to spike as a direct result of these aggressive loose monetary policies, gold can also benefit as a way to help investors safeguard their purchasing power. Looking at average annualized returns during various inflationary periods, gold showed an annualized return of 8.4% when inflation was below 2% and an annualized return of 16.2% when inflation was above 5%.

Adding to the case for GLD and GLDM is the slumping dollar.

“The US dollar has already begun to lose momentum, as its yield advantage over the G-10 countries has shrunk from a high of 2% in mid-March to zero following the emergency rate cuts that dropped the Fed funds rate to a range of 0.00 to 0.25,” according to Milling-Stanley.

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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.