Gold exchange-traded funds (ETFs), including the SPDR Gold MiniShares (NYSEArca: GLDM) and SPDR Gold Shares (NYSEArca: GLD), continued trading higher Tuesday with some market observers saying the recent ebullience surrounding the yellow metal is justified.
Gold ETFs are pushing to upside amid increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
“The rally in the price of gold went into overdrive on Friday with the metal hitting a near six-year high on a combination of a weaker dollar, slumping bond yields, geopolitical uncertainty, trade tensions and institutional money pouring into the sector,” reports Frik Els for Mining.com.
Fed Focus on Data
A data-fueled Fed no doubt took into account the latest economic data, such as the latest jobs report from the Commerce Department as an indicator on the health of the economy. Earlier this month, the Labor Department revealed that only 75,000 jobs were created in May, which fell below expectations and could be a sign that the U.S. economy could be on the verge of a slowdown.
Data indicate gold market volumes have recently been soaring as bullion climbs. GLD, the world’s largest gold-backed ETF, is up nearly 10% just this month.
“Contracts representing 45m ounces had been traded by 1pm in New York on Friday meaning that over the last two days the equivalent of almost a year’s worth of gold mining exchanged ownership,” according to Mining.com.
With gold rocketing higher, some analysts believe more upside is possible.
“The wire service also quotes from a report by investment bank Citigroup saying ‘the enthusiasm is justified’ and $1,500 to $1,600 an ounce is possible in the next 12 months under a bullish-case scenario that includes borrowing costs falling below zero,” notes Mining.com.
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