Gold ETFs have seen massive inflows as of late. The State Street SPDR Gold Trust (GLD) is up 33% YTD, alone. ETF Trends’ CEO Tom Lydon and VanEck Associates’ CEO Jan Van Eck were both on-hand with CNBC’s Bob Pisani on this week’s “ETF Edge” to discuss why gold has been shining so brightly, and it’s been fair to become more bullish.
As Van Eck explains, in simplified terms, “Gold competes against interest rates. If interest rates are high, gold becomes less attractive. As interest rates vector towards zero, then gold’s relative appeal will rise.”
The interesting thing to try and grasp are the real interest rates. As Van Eck notes, there are negative real rates around -1-2%. This is still good for gold, and with that in mind, while not a blowout, it could still rise two to three times.
All of that said, on the risk side, higher rates will be bad for Gold. As Van Eck makes clear, the bull market for gold will end when rates start going higher. The Fed is saying they’re not thinking about raising rates at this time, so there may be a longer cycle, but that is the risk at play.
Lydon jumps in here to note things may be in a stagflation environment, considering the unemployment numbers and the low economic growth. With low-interest rates and the potential for inflation, it all reflects other periods where gold has done very well.
There’s also the pure supply and demand concept of this. “The World Gold Council does a good job every month of being able to produce real reports about how much gold is being bought out there in the marketplace,” Lydon adds.
Beyond central banks and individual investors, there are things such as jewelry demand in emerging markets, which supports the price. Ultimately, this means gold is getting more expensive to get out of the ground. So, with that demand, there will continue to be advancing prices as well.
Watch This ETF Conversation with Tom Lydon and Jan Van Eck:
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