Gold exchange traded products, including the SPDR Gold Shares (NYSEArca:GLD), iShares Gold Trust (NYSEArca:IAU) and ETFS Physical Swiss Gold Shares (NYSEArca:SGOL), are each up about 8% year-to-date. Historical seasonal trends indicate the yellow metal could be a buy right now.
The good news for gold ETFs is that inflation could serve as a catalyst for the yellow metal. Rising inflation could also prove to be a catalyst for gold ETFs. By some metrics, the Fed has under-estimated U.S. inflation, which could prove beneficial to gold because the yellow metal is historically a popular inflation fighter.
Another possible catalyst for gold entering the back of the year is lingering debate surrounding how many times the Fed can raise rates this year (one more is what many traders are betting on) and in 2018 (three seems to be the bet there).
“The gold price enters one of its two historically strongest parts of the year, which should be good also for the GLD investors. The table below shows the monthly performance of gold futures (price data provided by Stooq), over the last 48 years. As can be seen, every month has experienced some great as well as some poor returns over the last five decades. However, some of the months are able to outperform in the long term,” according to a Seeking Alpha analysis of gold.
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. That scenario implies bullion will be helped if the Federal Reserve declines to raise rates later this month.
“Over the last 48 years, the highest average returns were recorded in January (2.0%), followed by July (1.58%), May (1.57%) and November (1.37%). On the other hand, the worst months for the gold investors were October (-0.48%) and June (-0.38%). As can be seen, the best seasons for gold are winter (November – February) and summer (July – September),” according to Seeking Alpha.
Year-to-date, investors have added $1.37 billion to GLD, the largest gold ETF. That includes second-quarter inflows of $916 million.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.