Up an average of 11.66% this year, the SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM) continue shining among commodities exchange traded products and plenty of banks expect that trend to continue.
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.
Analysts see a bright future for the shiny metal, especially in the ETF domain, where a flight to safety may soon take center stage once again, as overbought stocks continue to outpace the deteriorating economic backdrop due to the coronavirus pandemic.
“Gold remains a winner, in our view, as it is a hedge on quite fat tails on both sides – both deflation and more aggressive reflation,” according to a new research note from JPMorgan. “Gold is a beneficiary of real rates staying depressed due to economic weakness, but could also benefit if inflation shoots up, which could result in real rates staying low for longer.”
Gold ETFs Look Strong
Many investors look at gold as a hedge against inflation but do not consider that it has also proven beneficial in times of deflation. Gold could act as protection while the economy continues to be ravaged by the coronavirus, leading to rampant unemployment and an eventual sell-off in stocks
With the federal government stepping in to help shore up the economy, it might seem like gold gains could be tamped own. However, some market experts predict that the U.S. economy will be tested in the coming months, potentially further boosting bullion and ETFs like GLD and GLDM.
The World Gold Council (WGC) highlighted gold-backed ETFs that attracted inflows of over 298 tons of the precious metal in the first three months of the year, which sent global holdings in these physically-backed products to a record high of 3,185 tons. The WGC also added that ETF inflows for the first quarter surged more than 300% year-over-year.
“The price of gold is also positively correlated to the size of central bank balance sheets, according to the note. Those balance sheets have been ballooning since the crisis began, with the Federal Reserve’s growing to more than $6 trillion,” reports CNBC.
For more alternative investing ideas, visit our Alternatives Channel.
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.