Dovish comments from the Federal Reserve Wednesday lifted the fortunes of gold exchange-traded funds (ETFs) like the SPDR Gold MiniShares (NYSEArca: GLDM) and SPDR Gold Shares (NYSEArca: GLD) Thursday as bullion approached its highest levels in a year.
“The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased,” said the FOMC. “In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”
With the runway set for a possible rate cut later this year, gold surged Thursday with some of the marquee gold ETFs gaining more than 2%.
“Gold’s gathered momentum on Thursday after hitting a five-year high late yesterday after the US Federal Reserve signaled likely cuts to interest rates in the second half of the year,” reports Frik Els for Mining.com. “Gold for delivery in August, the most active futures contract trading in New York, came close to breaching the $1,400 an ounce level overnight and was trading at $1,392.00 an ounce in lunchtime trade Thursday.”
Gold ETFs Trending Higher
Gold ETFs are pushing to upside amid increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
“The relationship between long-term interest rates in the US (as proxied by 10-year Treasurys) and the gold price is strongly negative. The yield on the 10-year note dipped to below 2.00% on Wednesday, the lowest since the election of Donald Trump on November 8, 2016,” according to Mining.com.
Since the start of May, investors have added over $752 million to GLD.
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