On a more fundamental basis, the worldwide trend of lower interest rates has also been supportive of gold as an alternative asset that has helped maintained purchasing power. While the Federal Reserve has voiced its determination for tightening its monetary policy, the U.S. may still remain in a low or negative real interest rate territory for the foreseeable future. Meanwhile, in the rest of the world, negative nominal rates will prevail. Consequently, a zero yielding gold may continue to trump negative yields.
Furthermore, fundamental demand and supply remains supportive of the gold outlook, especially with growing demand from the rising middle class out of the emerging markets.
“I think, first of all, you know the gold market is very large, and it’s a function of supply and demand with supply being somewhat constrained and demand growing pretty consistently, and that’s one of the reasons why the price of gold goes up in the long run,” Adam Perlaky, Investment Research & Management at World Gold Council, said at the Morningstar conference. “So one of the things that people actually don’t realize… is that 70% of demand actually comes from emerging markets, within that about 50% of global demand comes from China and India.”
Related: Where’s Global Gold Demand Coming From?
Investors who are interested in gaining exposure to the gold markets have a number of options available to them. For instance, the SPDR Gold Shares (NYSEArca: GLD) is the largest and most liquid gold-related ETF on the market.
Furthermore, those who are still interested in gold but are wary of the negative relationship with a stronger greenback may consider the SPDR Long Dollar Gold Trust (NYSEArca: GLDW), which debuted earlier this year. The new gold ETF may help investors gain exposure to gold bullion price movements to hedge against potential market volatility, without worrying about the negative effects of an appreciating U.S. dollar.
For more ETF-related commentary from Tom Lydon and other industry experts, visit our video category.