Inflation Worries Continue to Give Gold More Upside | ETF Trends

As inflationary pressures continue to weigh heavy on the capital markets, they’re giving bullish gold investors an opportunity to capitalize on the precious metal’s upside.

In addition to inflation, geopolitical tensions in Ukraine are also fueling a flight to safe haven assets. During Thursday’s trading session, gold hit a one-week high as market uncertainty continues to swirl in investors’ minds.

“The very strong underlying inflationary pressures continue to be the main supportive fundamental factor driving the gold price. There are other ancillary factors, most notably, the war in Ukraine,” said David Meger, director of metals trading at High Ridge Futures.

As expected, the U.S. Federal Reserve raised the federal funds rate by 25 basis points. Even as more rate hikes are expected throughout the course of 2022, Meger doesn’t believe it will affect gold’s potential upside.

“Even the idea of a rising interest rate environment nipping at the heels of the gold market is not enough to offset the positive pressures that we’re seeing from the inflationary tilt. We believe that the Fed remains behind the curve,” Meger added.

An Alternate Way to Play Gold

Exchange traded funds (ETFs) can give investors alternate exposure to gold without having to physically hold the precious metal. One such ETF focused on gold futures is the Invesco DB Gold (DGL).

DGL seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Gold Index Excess Return™ plus the interest income from the fund’s holdings of primarily U.S. Treasury securities and money market income less the fund’s expenses. The fund is designed for investors who want a cost-effective and convenient way to invest in commodity futures.

The index is a rules-based index composed of futures contracts on gold. The fund and the index are re-balanced and reconstituted annually in November.

DGL Chart

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