As stocks tumbled Monday on the back of escalating trade tensions between the U.S. and China, investors looked to familiar destination for shelter from the storm: gold and the related exchange traded funds.
Gold ETFs, including the SPDR Gold MiniShares (NYSEArca: GLDM) and SPDR Gold Shares (NYSEArca: GLD), are among the best-performing commodities ETFs this year and during Monday’s sea of red for equity markets, gold ETFs stood tall.
Gold ETFs are pushing to upside amid increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
““The yellow metal is on the verge of a making for a run towards the $1,500 an ounce level and after that there is not much resistance until the $1,650 region,” said Edward Moya, senior market analyst at Oanda, reports Rachel Koning Beals for MarketWatch. “The trade war, a negative global interest-rate environment and weak corporate earnings are all positive catalysts for the remainder of the summer for gold.”
Volatility Lifting Gold
Exchange traded products that track the CBOE Volatility Index, or VIX, surged Monday as volatility experienced its sharpest daily jump in over a year in response to President Donald Trump’s threats to raise tariffs on Chinese imports.
Those tariff threats sparked a rally in gold and with a move to the $1,500 area appearing likely, that round number could prompt more traders to jump on the bandwagon.
“Fear is surging through financial markets and investors are jumping into gold as the U.S.-China trade war has turned into a currency war. The next target for gold in this environment is clearly $1,500 an ounce, analysts said,” reports Kitco News. “Overnight, the Chinese government let the yuan rise above 7 against the U.S. dollar for the first time in more than a decade. Along with the government allowing its currency to weaken, China has directed state-owned companies not to buy U.S. agricultural goods.”
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