With the economy still reeling from the coronavirus and the U.S. awash in protests, uncertainty is the order of the day. However, in action that’s befuddling some market observers, stocks continue trekking higher, but gold and ETFs, such as the SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM), are doing the same.
Some experts are saying the current market environment isn’t just conducive to owning gold, it’s perfect for bullion.
“The traditional feel-good asset in times of economic duress is nearing a 52-week high as protests continue to erupt across the nation in response to the recent death of George Floyd while he was in police custody in Minneapolis,” reports Steven Sears for Barron’s.
We are currently seeing greater demand for gold exposure through ETFs as an easy way to hedge against ongoing risks and as a way to protect purchasing power in light of aggressive monetary easing policies like near-zero interest rates and infinite bond purchasing.
More data is revealing that they’re putting physical gold on hold and picking up on gold exchange-traded funds (ETFs). Gold ETF inflows are continuing even as the U.S. economy begins to slowly reopen following the pandemic. Other data points confirm traders’ affinity for bullion, GLD, and GLDM.
“In the options market, investors have amassed GLD ETF call positions in September 2020, likely positioning for volatility to tick higher in one of the most tumultuous months of the trading year. Major stock market corrections have occurred in October, and that makes September a month of psychological dread and whippy trading,” according to Barron’s.
Gold bullion has been a traditional safe-guard of wealth and purchasing power in times of high inflation, and the loose monetary policies should devalue the currency. Lower interest rates are helping gold’s cause, too. Depressed interest rates diminish the opportunity cost of holding non-yield-generating assets, like gold.
“To be sure, GLD is always a strange creature to trade. Most equities normally evidence a bullish or bearish bias in the options market,” reports Barron’s. “This means that bullish calls or bearish puts are usually more expensive, reflecting investor demand. But GLD’s options tend to always indicate a bullish bias and a bearish bias. The peculiarity reflects the always passionate debate about the true value of gold. In some ways, the polemics are ultimately academic.”
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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.