Gold exchange traded products, including the SPDR Gold Shares (NYSEArca:GLD), iShares Gold Trust (NYSEArca:IAU) and ETFS Physical Swiss Gold Shares (NYSEArca:SGOL), have recently encountered some headwinds, but that is not preventing some commodities market observers from forecasting a resurgence for the yellow metal.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. That scenario implies bullion will be helped if the Federal Reserve declines to raise rates later this year. The Fed has boosted borrowing costs twice this year and many bond market observers believe rate hike will happen later this year with three more rate hikes expected in 2018.
“Michael Dudas, a Wall Street analyst who has followed precious metals and miners for decades, predicts gold is on the cusp of recovering its losses,” reports CNBC. “Dudas is making the case that gold prices will reach $1,350 in six months. If that forecast is right, that would translate into a 10 percent gain from current levels.”
The dollar has been one of the worst-performing developed market currencies this year, which has been an assist to gold at various points during the year. However, some currency traders believe the dollar can rebound. While that could be seen as a stumbling block to gold, there are ways for investors to prosper with the yellow metal even if the dollar rallies.
For instance, the SPDR Long Dollar Gold Trust (NYSEArca:GLDW), which debuted earlier this year. The new gold ETF may help investors gain exposure to gold bullion price movements to hedge against potential market volatility, without worrying about the negative effects of a strengthening U.S. dollar.
GLDW tries to reflect the performance of the Solactive GLD Long USD Gold Index, which is designed to represent the daily performance of a long position in physical gold and a short position in the FX Basket comprised of euro, Japanese yen, British pound, Canadian Dollar, Swedish krona and Swiss franc. The performance of the USD against the currency basket will determine whether the index increases or decreases the amount of gold held.
“Dudas also makes a fundamental case that gold prices will strengthen. He believes inflation expectations will pick up and exceed nominal interest rates. He also says seasonal factors bode well for gold, and he sees some supply and demand factors as bullish signs longer term,” reports CNBC.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.