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.
“Most of the investors I have spoken with believe we are in for much greater volatility in equities. As for investor positioning going into 2018, there has definitely been an increase in strategic allocations to gold on the part of both institutions and individuals,” Milling–Stanley said.
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Gold traders have also closely monitored the U.S. dollar movements as the two assets have exhibited an inverse relationship. Artigas, though, assured investors that while rates in the U.S. are rising, investors are also expecting the European Central Bank and Bank of Japan to raise rates, which could strengthen those respective currencies against the greenback. Disruptions in trade based on more nationalistic approach to growth has also limited the potential for the dollar to strengthen.
As investors look for ways to hedge against market risk and build a diversified investment portfolio, a gold ETF like the SPDR Gold Shares (NYSEArca: GLD) is a good way to protect spending power in an inflationary environment and provides a safe haven investment opportunity.
For more information on the gold market, visit our gold category.
World Gold Council and its subsidiaries are not affiliated with ETF Trends.