Gold prices are posting double-digit gains and have rebounded back above $1,300.00 in early-morning U.S. trading Friday. Safe-haven demand is in play on this last trading day of the week and of the month, as world equity markets languish.
The SPDR Gold Trust (GLD) is up 1.26% today so far, as investors run for the hills amidst new fears of a falling stock market due to new and unanticipated tariff threats.
Gold has long been used as a safe haven asset, particularly when the value of the dollar declines or investors fear market volatility and uncertainty, like in the case of a tariff war. Furthermore, it provides a hedge for inflation since its price typically rises in conjunction with consumer prices.
During the Great Depression of the 1930s, gold was also a hedge against deflation. While the prices of assets were dropping during this time, the purchasing power of gold rose to prominence.
Fast forward to the financial crisis in 2008, the price of gold increased sharply while faith in U.S. equities was languishing. In essence, gold has proven to withstand times of geopolitical and economic uncertainty.
Furthermore, the value of gold has risen steadily over the years.
GLD is supposedly the largest physically-backed gold exchange-traded fund in the world, with roughly $30 billion worth of net assets. It offers market participants an efficient way to access the gold market, as it mimics the price of gold almost identically.
In the second half of 2011, the SPDR Gold Trust ETF (GLD) rose to record highs of $185.85 as a result of deeply-ingrained economic uncertainties and extreme volatility in global equities markets. Since that time, GLD has dropped by 34.71% while the S&P 500 has generated an amazing recovery and achieved its own record valuations.
But now that U.S. stock benchmarks have overshot their historical averages by a wide margin and the market is encountering increased uncertainty and rising volatility, there is a greater chance that these recent trends could reverse. Central bank buying activity and declines in corporate earnings expectations are additional factors which could send valuations in metals prices much higher.
According to analysts at SeekingAlpha.com, if market prices are able to break upward resistance levels at 127.20, (GLD is currently trading at $123.16), the sequence of lower highs which began in August 2013 will have ended and this may indicate further gains for GLD in 2019.
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