Recession Fears Continue to Support Gold ETF Inflows

While the capital markets expect the Fed to wind down its policy tightening, fears of a recession are still swirling. This continues to feed inflows into funds like SGDM, a gold ETF.

Recession fears have been pushing up bond prices, which conversely, drives down yields. Rising inflation continues to apply downward pressure on the U.S. dollar. Both these factors are serving as catalysts for gold ETFs, according to the World Gold Council (WGC) via the Gold Hub.

“Continued gold price strength sustained positive flows into physically-backed gold ETFs , albeit at a slower pace than March,” the Gold Hub blog post noted. “Declining yields and a sliding dollar pushed April’s average gold price to the highest in a year.”

The increased inflows come as gold pushed past the $2,000 mark before recently retreating. Prices for the precious metal are still up about 8% for the year despite the recent pullback.

“Following two consecutive monthly inflows, global gold ETF total assets under management (AUM) rose 1% to US$221bn by the end of April,” the blog added.

The overall expectation in the capital markets is that the Fed will eventually decrease the pace of its rate hikes. In the meantime, the aforementioned recession fears should continue to support elevated gold prices.

“This year gold prices have rallied by more than 10% versus the U.S. dollar. A weaker dollar and expectations that the Fed hiking cycle will come to an end soon are the main reasons behind its strength. Concerns about the economic outlook, inflation and geopolitics tensions have also helped. We think that the upside is limited from current levels,” said Georgette Boele, senior economist at ABN AMRO, per a Kitco News report.

Physically backed gold ETFs provide investors with exposure to gold prices without the storage logistics associated with holding physical gold. Investors looking to add gold exposure that mimics physical exposure can look to gold-based funds like those mentioned below.

3 Options for Gold Exposure

ETF provider Sprott offers a variety of ways to get gold exposure. One is the Sprott Physical Gold Trust (PHYS), which is a fund that provides an enhanced physical bullion structure, offering the ease of purchase and sale that comes with being traded on an exchange.

For an alternate play on gold prices via ancillary gold services like mining, investors can also consider the Sprott Gold Miners ETF (SGDM). If demand continues to rise for gold, this can have a domino effect on miners.

Per SGDM’s fund description, the ETF seeks investment results that correspond generally to the performance of its underlying index, the Solactive Gold Miners Custom Factors Index. The index aims to track the performance of larger-sized gold companies. In particular, it tracks those whose stocks are listed on Canadian and major U.S. exchanges.

Lastly, investors can also consider the Sprott ESG Gold ETF (SESG). The fund provides transparency on the provenance of its gold by sourcing gold produced from select mines in North America.

“We consider Canada to be one of the world’s premier mining jurisdictions with high levels of regulation, safety and oversight setting a standard for sustainable mining,” Sprott noted on its product website.

For more news, information, and analysis, visit the Gold/Silver/Critical Materials Channel.