Gold is one of this year’s best-performing assets. That fact is highlighted by various ETFs holding the yellow metal. Just look at the VanEck Merck Gold Trust (OUNZ), which is higher by 33% year to date. That’s well in excess of the 22.72% returned by the S&P 500.
When considering gold’s high-flying status and the fact that bullion continues notching all-time highs, some investors may think they’ve missed out on the “easy money” and that upside from here is limited. Some experts see things differently. They believe the metal is now in the midst of a new, potentially lengthy bull market.
Obviously, that’d be good news for OUNZ and related ETFs. Weakness in the U.S. dollar and declining real interest rates could augur well for ETFs like OUNZ.
Gold Fund OUNZ Could Be Obvious Choice
As has been widely noted, OUNZ and other gold ETFs are getting a lift from global central banks’ ongoing purchases of the precious metal. But that factor is arguably priced into the metal at this point. That indicates buying activity would likely need to accelerate in material fashion to drive more upside in gold prices.
That could happen. But the good news for investors considering OUNZ is there are other factors supporting more upside for the metal. Those include the aforementioned declines by real rates.
“Looking at the past six months, both the dollar and real rates have turned from headwinds to tailwinds. In recent months the historically negative relationship between gold and the dollar has reasserted itself (i.e. the price of gold has risen as the dollar weakened),” according to BlackRock. “A similar dynamic holds for real rates. Since the spring, the correlation between the daily change in the price of gold and daily change in real 10-year yields has been -0.30.”
Declining real rates and expectations of more central bank easing, including by the Federal Reserve, are positives for gold, but near-term in nature. The yellow metal and ETFs such as OUNZ are stores of value that often function well for long-term investors. The aforementioned central bank buying trends are pertinent. That’s because those purchases are accrued over lengthy time frames.
“In addition to an inflection in the macro-outlook, the longer-term support from central bank demand I discussed back in July remain very much in place. Central banks continue to add to their gold portfolios. Based on data from Bloomberg, China’s central bank gold holdings are roughly 45% higher today than in the summer of 2022,” concludes BlackRock.
For more news, information, and analysis, visit the Beyond Basic Beta Channel.
