Recently, gold exchange traded products, including the SPDR Gold Shares (NYSEArca:GLD), iShares Gold Trust (NYSEArca:IAU) and ETFS Physical Swiss Gold Shares (NYSEArca:SGOL), have cooled off but some traders believe the yellow metal can be a viable idea for the second half of 2017.
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.
Another possible catalyst for gold entering the back of the year is lingering debate surrounding how many times the Fed can raise rates this year (one more is what many traders are betting on) and in 2018 (three seems to be the bet there).
“On Wednesday, options traders started piling into the GLD, the exchange-traded fund tracking gold,” reports CNBC. “In one eyebrow-raising trade, someone bought 35,000 of the December 135/160 call spread paying 42 cents each. Since each options contract accounts for 100 shares, this is about a $1.5 million bet that the GLD will close above $135.42 by December expiration — which is more than 16 percent above where it was trading Thursday.”
In the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates as many as three times this year, gold prices could move modestly higher with some help from emerging markets, namely China and India.
“The hike in taxes on gold sales could pressure short-term demand from the world’s second largest consumer of the metal, the World Gold Council said on Thursday. In top consumer China, premiums ranged between $9 and $10 an ounce, mostly unchanged from $9-$11 last week, traders said,” according to Business Recorder.
Related: Rising Inflation Could Create a Catalyst for Gold ETFs
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
In the second quarter, investors added almost $874 million in new capital to GLD. Year-to-date, the ETF has seen inflows of $861 million.
For more information on the gold market, visit our gold category.