Recession Fears Strengthen Need for Gold Exposure | ETF Trends

It’s difficult to avoid getting caught in the financial news web regarding a potential recession. Nonetheless, it should continue to fuel a demand for safe haven assets such as gold.

In the meantime, capital markets are fixating on incoming economic data to see signs of a pending recession, while some economists or market experts say that the economy is already in one. Manufacturing activity, in particular, could hint that rising rates may be causing economic growth to stagnate.

“Recession fears in the U.S. are not abating as the Philadelphia Federal Reserve highlights further weakness in its region’s manufacturing sector, with activity falling to a new three-year low,” Kitco News reported.

“Thursday, the regional central bank said its manufacturing business outlook fell more than expected to -31.3 in April, down from March’s reading of -23.2,” the report added. “The data significantly missed expectations as economists looked for some improvement to -19.7.”

More broader economic indicators are also signaling signs of a recession. Take the Conference Board’s Leading Economic Index, for example — it fell by by 1.2% in March, which was more than the 0.7% drop that economists were forecasting.

As Investopedia pointed out, this “marked its largest single-month decline since April 2020 at the height of the pandemic’s economic turmoil.” As such, it only strengthens the case for investors to get gold exposure.

Simplified Physical Gold Exposure

Investors looking to add gold exposure to their portfolios have a pair of options from Sprott. Firstly, they can consider 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.

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, which can provide indirect exposure to gold prices.

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 whose stocks are listed on Canadian and major U.S. exchanges.

“Gold has a price that tends to be relatively uncorrelated to the broader economic cycle,” a Morningstar article explained. “In addition, it has perceived countercyclical, safe-haven investment attributes while also being seen as an inflation hedge.”

“Investment and jewelry take up most of global gold demand, and a demand slowdown is the key risk to cash flows,” Morningstar added. “A reduction in Chinese fixed-asset investment, lowering demand for copper, would also have some impact.”

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