Gold ETFs have been helped this year by, among other factors, low interest rates throughout the developed world and the slumping U.S. dollar. Just look at the top performing SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL).
Investor demand still remains an integral part of the gold equation, too. Moreover, in the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates over the mid- and long-term, gold prices could still move modestly higher with some help from increased demand out of the emerging markets, namely China and India.
“Breaking a long trend, demand for gold jewelry in China and India has plummeted in recent years,” said Morningstar in a recent note. “But despite this massive decline in the largest single source of gold demand, prices have risen, largely due to strong investor demand. In the face of ongoing interest-rate hikes by the U.S. Federal Reserve, ETF holdings have risen to levels last seen in 2013.”
The good news for gold ETFs is that inflation could serve as a catalyst for the yellow metal. Rising inflation could also prove to be a catalyst for gold ETFs. By some metrics, the Fed has under-estimated U.S. inflation, which could prove beneficial to gold because the yellow metal is historically a popular inflation fighter.