Hold the gold—it’s a simple strategy in an uncertain market that could turn any day by various risk-based factors, but Longview Economics CEO Chris Watling suggests another reason that could help support gold prices is the Federal Reserve’s repo program. The central bank uses the program to adjust the supply of reserve balances to keep its interest rate target in check.
“It is putting a lot of liquidity, a lot of dollar money, into the system, and that is supporting the price,” Waitling said in a CNBC report.
However, that is counterbalanced by what Waitling forecasts is a pumping of the brakes on interest rate cuts in 2020. That could stymie any rallies in gold, such as the recent move higher as a result of tensions rising in the Middle East between the U.S. and Iran.
“What really determines the gold price is typically real interest rates, Fed funds interest rate expectations and things like that, and I think we can price out a cut from the Fed funds curve, I think we’re going to get TIPS (Treasury Inflation Protected Securities) yields moving up this year, and actually it’s quite a consensus ‘long’ now, so all of that is a good reason to sell it,” Watling said.
Other market experts err on the side of bullishness as a result of the central bank’s actions. Basically, more dollars would translate to more gold gains.
“Gold is a hedge against debasement and what we saw in 2011 was debasement, printing too many dollars and the real rate goes down, down, down, which then pushes up the price of gold,” said Goldman Sachs’ Global Head of Commodities Research Jeff Currie. “If you do see that, the potential to push gold back up into that $1,800-$1,900 range becomes pretty realistic.”
Golden Exposure in 2020
Investors looking for core exposure to gold in 2020 can look at the SPDR Gold Shares (GLD). GLD seeks to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations–the Trust holds gold bars and from time to time, issues baskets in exchange for deposits of gold and distributes gold in connection with redemptions of baskets.
Investors can also look to funds like the SPDR Gold MiniShares (NYSEArca: GLDM). Gold ETFs can be bought and sold freely via an exchange when compared to physical gold, allowing investors to utilize the hedging properties of gold without having to endure the costs of actually owning and storing the asset like they would with physical gold.
Traders looking to use leverage can look at the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), which makes an indirect play on the precious metal via gold miners. NUGT seeks daily investment results, before fees and expenses, of either 300%, or 300% of the inverse (or opposite), of the performance of the NYSE Arca Gold Miners Index.
For more market trends, visit ETF Trends.