The U.S. economy is perking up, but it’s nowhere close to pre-pandemic levels. That lethargy could give rise to more upside for gold ETFs, such as the SPDR Gold Shares (NYSEArca: GLD)and the SPDR Gold MiniShares (NYSEArca: GLDM).

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.

Additionally, historical data confirm gold is a winner in periods of economic weakness, often topping stocks, bonds and the dollar when the economy slumps.

“Gold is popularly associated with providing a potential hedge during economic downturns, so it’s not much of a surprise that it has risen 27% year to date and is on track to have its best year since 2010,” writes Maxwell Gold, SPDR head of gold strategy. “Given continued uncertainty during this current recession, it may pay to not only focus on gold’s historical track record during these phases but also to evaluate the key drivers supporting gold’s current outlook, which remain strong – even against the potential for a US economic recovery.”

Going for Gold

With inflation showing signs of life, that’s another reason for investors to consider gold ETFs.

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%.

If the current economic sluggishness continues, investors can find friends with GLD and GLDM.

“Since 1971, when gold began freely trading in the post-Bretton Woods era, the US has experienced seven economic recessions,” notes SPDR’s Gold. “During these periods, gold averaged a 20.19% return, which has led the way compared with other major US assets – including US stocks, Treasury bonds, corporate bonds, and the US dollar. Additionally, gold managed to provide positive returns and outperform broad commodities in all but one of those periods (1990-1991).”

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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.