Exchange traded fund investors should consider gold as a way to mitigate potential risks and hedge against inflationary pressures.
On the recent webcast, Is Now the Right Time to Invest in Gold?, Juan Carlos Artigas, Director of Investment Research for the World Gold Council, outlined a historically positive relationship between gold demand and economic growth as supportive for the gold market ahead.
“Our research shows that continued economic growth underpins gold demand. As incomes rise, demand for gold jewellery and gold-containing technology, such as smartphones and tablets, rises. Income growth also spurs savings, helping increase demand for gold bars and coins,” Artigas said.
George Milling–Stanley, Head of Gold Strategy at State Street Global Advisors, also argued that gold won’t be facing the same headwinds it experienced in 2017. While the Federal Reserve is still likely to maintain its interest rate hike schedule, rising rates did not overly affect gold performance.
“The current cycle of interest rate normalization that started back in December 2015 has done nothing to hurt investment demand for gold, and I don’t see that situation changing any time soon,” Milling–Stanley said.
Furthermore, Artigas believed that if the Fed increased rate hikes due to inflationary concerns, then rate hikes will be less of a headwind for gold as traders’ attention focuses on inflation potentially getting out of hand.
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Market volatility could also be a major driver for gold demand ahead as the precious metal has been used as a safe-haven or uncorrelated play to diversify a traditional equity and fixed-income portfolio. Gold’s behavior during February’s correction was consistent with how it has acted during other volatile conditions.