With investors still jittery about global equities and bond yields depressed, the stage is set for gold gains and bullion-backed ETFs, such as the SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM) are taking advantage of some good timing.
Spot gold prices reside near seven-year highs, helping GLD and GLDM to year-to-date gains of more than 13% apiece and with economic data deteriorating in rapid fashion, investors could be even more inclined to embrace the safety of gold.
“Spot bullion held its ground after a four-day surge, with the International Monetary Fund warning the pandemic-induced global recession will be the deepest since the Great Depression,” reports Bloomberg.
While there is some feeling that the stay-at-home orders in many states will help to curtail the damage and spread of the coronavirus pandemic, market analysts still see further equity market destruction, which will support safe-haven assets like gold.
Going With Gold
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.
“The precious metal has rallied 14% this year, supported by record holdings in bullion-backed exchange-traded funds, which rose again on Tuesday,” according to Bloomberg. “Bullion’s resilience came even as leaders in Europe and some U.S. states prepared to ease lockdowns, with the coronavirus pandemic showing signs of easing. The dollar held near a one-month low.”
Dollar weakness is beneficial to gold for at least two reasons. First, the obvious being that gold, like all commodities, is denominated in gold, meaning its relationship to the greenback is inverse. Second, if stocks and the dollar decline in unison while gold rallies, that’s a signal bullion is the preferred safe-haven play over the U.S. currency.
Earlier this week, gold traded near the highest close in more than seven years as investors weighed the asset’s merits as a haven against a backdrop of dire predictions for a global recession, further hefty inflows into bullion-backed funds, and a softening dollar,” according to Bloomberg.
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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.