The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold-backed exchange traded products have recently given back some gains, but that does not mean investors abandon gold altogether.
The yellow metal has recently been pressured by, among other forces, a slight uptick in the previously sliding U.S. dollar and expectations that the Federal Reserve will raise interest rates for the third time this year at its December meeting.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. Interest rates remain low in many developed markets and some emerging markets have been rapidly lowering borrowing costs this year.
“Gold is up in an environment in which investors have had little reason to hedge; any market pullback has been both mild and fleeting,” said BlackRock in a recent note. “Yet gold has kept pace with the overall returns of a typical 60/40 portfolio. In other words, this has been an unusual year in that your hedges have not cost you anything in the form of foregone returns.”