Volatility in Equities Paving the Way for Gold Gains

As the capital markets were sent in a daze following the news that China would retaliate after the latest tariffs by the U.S., investors rushed to safe havens like precious metals. In particular, this market volatility is paving the way for gold gains.

The volatility have been kind to gold prices as fears of a global economic slowdown are forcing investors to allocate capital into safe-haven assets like precious metals. Additionally, it’s been three primary ingredients that have been fueling gains for gold, according to John Davi, founder and chief investment officer of Astoria Portfolio Advisors.

For many investors, gold is the standard in precious metal investing, which has become more accessible than ever thanks to options via an exchange-traded fund (ETF) wrapper like the SPDR Gold MiniShares (NYSEArca: GLDM).

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, which helped ETFs like the SPDR Gold Shares (NYSEArca: GLD)–an industry leader with a $34 billion market cap.

Adding precious metals to a portfolio certainly speaks to the diversification benefits of gold, among other things. However, with gold trading at over $1,400 an ounce as of August 5, investors who feel they might be priced out of this asset can look to a low-cost solution like GLDM.

GLDM recently celebrated its one-year anniversary near the end of June. GLDM is up 10.62 percent year-to-date and 15.61 percent the past year, according to Morningstar performance figures.

“The success of GLDM in accumulating assets under management of around three quarters of a billion dollars in less than a full year of operation supports the view that this was the right product at the right time,” Milling-Stanley said. “Investors across the whole universe of ETFs were seeking lower share prices and lower expense ratios, and GLDM has clearly satisfied this search.”

GLD is also a favorite for short-term traders with its high liquidity. With the Federal Reserve cutting interest rates last week, this put gold in play.

The central bank cited “implications of global developments for the economic outlook as well as muted inflation pressures.” The Fed also said it would “act as appropriate to sustain the expansion,” which meant that future rate cuts could take place. 

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