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 recently traded slightly higher and some gold market observers are forecasting more upside for the yellow metal.
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.
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.
“Gold’s on track to climb to a four-year high of $1,400 an ounce by early next year, buoyed by lower long-term U.S. interest rates and lack of progress by President Donald Trump in delivering economic reforms, according to the global head of commodities research at Bank of America Merrill Lynch,” reports Bloomberg.
Gold rose more than 2% in July, posting its best monthly gain since February. 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.
“Bullion has jumped 12 percent this year as the dollar weakened, turmoil in the Trump administration cooled optimism over reforms and tensions with North Korea sparked fears of conflict,” according to Bloomberg. “Money managers boosted net-bullish bets on New York futures to the highest since October, while billionaire Ray Dalio, who leads the world’s largest hedge fund at Bridgewater Associates, recommends investors consider placing as much as 10 percent of their assets in gold.”
The ongoing political drama in the U.S. has also weighed on the U.S. dollar, which helped support the gold outlook. With traders remaining skeptical that this week’s Federal Reserve meeting would do much to alter the recent weakness, gold has maintained its recent strength.
Moreover, in the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates over the mid- and long-term, gold prices could still move modestly higher with some help from increased demand out of the emerging markets, namely China and India.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.