Gold futures are trading down today, off over 1% as investors react to an abysmal ADP employment report for April that showed a painful loss of U.S. jobs. June gold futures were trading at $1692 an ounce, heading into the stock market close on Wednesday.
But 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.
“So I think the safety trade is still in play. I do prefer GLD over the miners. GLD is your pure-play and then all the miners, the issue with them is they actually have the commodity. GLD does very well as a calamity hedge, and I think you would all agree that this is definitely a calamity now,” explained Mark Tepper of Strategic Wealth Partners on CNBC.
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. All this is potentially positive for investors of gold ETFs such as the SPDR Gold Trust (GLD).
“[Gold] also does well during periods of inflation but also deflation, and there’s absolutely no question about it that there has been a ton of money created over the last few weeks. And when you look at the stock market over the last few weeks the stock market has gotten cocky. It’s been brushing off bad news and it just continues to move higher and higher. And I think we’re at the point right now where stocks have gotten way ahead of themselves, and the stock market does not reflect what’s happening in the economy. So I do think that double-digit unemployment is going to be the norm for quite a while. And because of that, I think the safety trade is going to be valid over the course of the next several months. It’s going to be good news for the GLD holders,” said Tepper.
Other analysts also see gold continuing to shine for ETF investors, but look to the miners for gains, acknowledging GLD could still perform well.
“So I like the gold miners and actually GLD should still do well in my opinion also in the weeks ahead. We’ve seen GDX the gold miners ETF rose to the highest level since 2013 yesterday, so despite today’s weakness, it’s actually been performing quite well. So GTX to me represents a pretty decent momentum as part of an environment where not a lot of things I’ve been working lately over the last couple of months. So this is still something that I own and I think and make further progress in the weeks and months to come,” said Mark Newton of Newton Advisors on the same segment.
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