As the bull equity market starts to sputter toward the end of the economic cycle, more investors are picking up gold ETFs to hedge their portfolio against further risks.
For example, the SPDR Gold Shares (NYSEArca: GLD), the largest physically backed gold-related ETF on the market and go-to option for gold exposure for many ETF investors, has attracted close to $2.8 billion in net inflows since the start of Q4 2018 when the equity markets took a severe turn for the worse, according to XTF data.
Additionally, the SPDR Gold MiniShares Trust (NYSEArca: GLDM), a relatively new offering that provides the cheapest exposure along with a low share price to those investors seeking exposure to the yellow precious metal, saw $222 million in net inflows as well.
An increasing number of investors are relying on physically backed gold ETFs to gain exposure to the gold markets.
“Since the launch of GLD in November 2004 helped to democratize gold investing, investors have put around $100 billion into gold-backed ETFs around the world. GLD itself accounts for one-third of these inflows. That is a powerful vote of confidence, and suggests these innovative products met, and continue to meet, a significant need on the part of gold investors,” George Milling-Stanley, Head of Gold Strategy at State Street Global Advisors, told ETF Trends.
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Meanwhile, gold prices have increased nearly 7% since October, with Comex gold futures now hovering around $1,284 per ounce after being depressed for most of 2018 due to the strength of the U.S. dollar and steady performance in the U.S. equity market. However, the good times did not last, and investors looked to safety toward the end of the 2018.
“What has changed since that period of gold weakness came to an end in Q4 is that investors are gradually coming to the realization that as 2019 unfolds, the equity markets will no longer enjoy the support of the Trump tax cuts, and the dollar cannot rely on support in the form of multiple interest rate increases. That growing awareness is responsible for the rather shaky performance of both the dollar and equities toward the close of 2018 and in early 2019, and that has been helpful for the gold price,” Milling-Stanley said.
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Gold may continue to shine in 2019. As the market environment shifts, Milling-Stanley argued that the depressing influences on gold that occurred during the before the last quarter of 2018 will not likely be repeated in 2019. Furthermore, gold will see continued investment demand among the emerging markets, along with increased demand for safe-haven plays across developed markets.
As investors look to diversify their investment portfolios, one may consider allocating gold of between 2% and 10%. Milling-Stanley added that “studies also suggest that during periods of exceptional turbulence in financial markets, it can be prudent to consider doubling the size of an allocation to gold.”
For more information on the gold markets, visit our gold category.