As President Trump’s former national security adviser Michael Flynn plead guilty to federal agents last week, investors flocked to a familiar safe haven: gold.
The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold-backed exchange traded products saw renewed interest following Flynn’s guilty plea and his promise to cooperate with an ongoing investigation.
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.
SPDR Gold attracted $351 million as prices advanced after reports that Trump’s former national security adviser Michael Flynn pleaded guilty to lying to federal agents and would cooperate with investigators,” reports Bloomberg. “The news sent gold prices surging amid demand for haven assets. The metal pared gains later as deficit hawks opposed to the Senate tax bill vanished, clearing the way for its passage early Saturday morning.”
The recent inflows to GLD whittle the ETF’s fourth-quarter outflows to just over $660 million, still among the top 10 for all ETFs this quarter. Year-to-date, GLD and IAU have added about $2.2 billion in new capital on a combined basis.
Tax reform along with other government initiatives coupled with higher interest rates and a stronger dollar are among the factors that could hamper potential upside for gold. The Trump Administration’s tax reform effort is widely seen as the major near-term catalyst for equities, meaning that passage of the initiative could encourage increased risk appetite while weighing on safe have assets like gold.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.