The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold exchange traded funds sank to one-year lows Tuesday as Treasury yields rose, but some ETF investors remain dedicated to the yellow metal.
As the dollar has strengthened, GLD and other gold ETFs have recently given back some gains and are now flat on a year-to-date basis. Additionally, global gold demand dipped in the first quarter, but ETFs were an exception. On a global basis, gold ETFs have added new assets for five consecutive quarters.
“But even as bullion prices in the futures market headed toward a new low for the year, exchange-traded fund investors have been bullish on gold. Investors poured about $3.1 billion into gold-backed ETFs during April, the highest total since February 2017, data from the World Gold Council showed,” reports The Wall Street Journal.
What’s Next for Gold
Historically, rising Treasury yields have weighed on gold because bullion and the related ETFs do not pay coupons or dividends. Additionally, higher bond yields due to rate tightening by the Federal Reserve can hamper commodities because the dollar often strengthens as Treasury yields increase. Gold and other commodities are priced in dollars. The strong dollar makes commodities more expensive.
GLD is the largest physically backed gold ETF on the market, providing investors exposure to gold price movement in an easy-to-use investment vehicle. The ETF is backed by physical gold bars stored in London vaults. The gold trust currently holds about 27.2 million ounces of gold, so each SDPR Gold Shares represents fractional ownership of the underlying gold.
“ETF buyers and other bulls have turned to gold as a traditional safe haven play during turbulent political times, with the prospect of a trade war still looming, uncertainty swirling around North Korea, and tensions in Syria and Iran flaring up,” according to the Journal.