It seemingly appears like the majority of asset classes are rebounding from last year’s inflationary weakness, with the U.S. declining to start the new year. Bullishness from a technical standpoint is also feeding into bullishness for gold prices.
As the capital markets were feeling the woes of rising inflation and a tightening monetary policy implemented by the U.S. Federal Reserve last year, gold was stuck following the broad market downward. The precious metal started the year on a high note amid a safe haven scramble following Russia’s invasion of Ukraine, but eventually succumbed to the broad market woes.
The expectation that rate hikes will lessen is also translating into technical strength for gold prices pushing to the upside. According to a Kitco News report, “the precious metal is up $100 in the first month of 2023, its best start to the year since 2012.”
“The yellow metal is finding fresh demand from traders and investors seeing an improved outlook as last year’s headwinds, from rate hikes to rising yields and dollar, become tailwinds as rate hikes eventually pause while yields and the dollar softens amid concerns about the economic outlook,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Of course, the Fed will play a key factor in gold’s current momentum, but analysts are brimming with optimism.
“The market is currently forecasting one or two further U.S. rate hikes before pausing at or below 5%. Should history repeat itself, gold may have a significant further upside,” Hansen added.
A Gold Play on Miners
Investors looking for an alternate route to play the uptrend in gold prices can also look at gold miners. Specifically, they may want to consider the Sprott Gold Miners ETF (SGDM) as a backdoor play on gold.
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.
The index uses a transparent, rules-based methodology that is designed to emphasize larger-sized gold companies with the highest revenue growth, free cash flow yield, and the lowest long-term debt to equity. The index is reconstituted on a quarterly basis to reflect the companies with the highest factor scores.
Of course, the beauty of SGDM is the backdoor play on miners. Investors are shielded from the higher volatility of gold prices.
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