Following the Federal Reserve’s decision to keep rates flat, gold exchange-traded funds (ETFs) like the SPDR Gold Shares (NYSEArca: GLD) and SPDR Gold MiniShares (NYSEArca: GLDM) gained as the dollar fell.
GLD gained 0.65 percent while GLDM rose 0.61 percent. The Invesco DB US Dollar Bullish (UUP) fell 0.58 percent
In move that was widely anticipated by most market experts, the Federal Reserve on Wednesday elected to keep rates unchanged, holding its policy rate in a range between 2.25 percent and 2.5 percent. In addition, the central bank alluded to no more rate hikes for the rest of 2019 after initially forecasting two.
“The U.S. economy is in a good place,” said Powell. “We will continue to use our monetary policy tools to help keep it there. The jobs market is strong, showing healthier wage gains and prompting many people to join or remain in the workforce. The unemployment rate is near historic lows and inflation remains near our 2 percent goal.”
The capital markets initially expected rates to remain steady after the central bank spoke in more dovish tones following the fourth and final rate hike for 2018 last December. Prior to the announcement, the CME Group’s FedWatch Tool was expecting a 98.7 percent chance that rates would remain steady.
“We continue to expect that the American economy will continue to grow at a solid pace in 2019 although likely lower than the very strong pace in 2018,” said Powell. “We believe our current policy stance is appropriate.”
Gold: the Default Safe-Haven Against a Declining Dollar
Gold has long been used as a safe haven asset, particularly when the value of the dollar declines. Furthermore, it provides a hedge for inflation since its price typically rises in conjunction with consumer prices.
In 2018, rising interest rates that coincided with an extended bull run in U.S. equities for most of the year fueled a strong dollar, tamping down gains for gold. However, when investors got washed in a cycle of volatility that started in the fall and lasted through year’s end, investors were quick to reconsider the precious metal as a safe haven.
Adding precious metals to a portfolio certainly speaks to the diversification benefits of gold, among other things. However, with gold trading at over $1,300 an ounce and GLD having a share price of over $100, investors who feel they might be priced out of this asset can look to a low-cost solution like GLDM.
“GLDM has a low yearly management fee,” said Greg Collett, Director of Investment Products at the World Gold Council. “It was squarely-aimed at the long-term holding, buy-and-hold gold investor.”
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