After starting 2018 on strong notes, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold exchange traded funds have recently tumbled, but some market observers believe the yellow metal may offer near-term rebound potential.
As the dollar has strengthened, GLD and other gold ETFs have recently given back some gains and are now flat on a year-to-date basis. Additionally, global gold demand dipped in the first quarter, but ETFs were an exception. On a global basis, gold ETFs have added new assets for five consecutive quarters.
“It makes sense to hold it as a pure play because of all the geopolitical risk that’s out there. It’s still a calamity hedge,” Mark Tepper, founder and president at Strategic Wealth Partners, said an interview with CNBC.
Factors to Consider
GLD is the largest physically backed gold ETF on the market, providing investors exposure to gold price movement in an easy-to-use investment vehicle. The ETF is backed by physical gold bars stored in London vaults. The gold trust currently holds about 27.2 million ounces of gold, so each SDPR Gold Shares represents fractional ownership of the underlying gold.
“ETF buyers and other bulls have turned to gold as a traditional safe haven play during turbulent political times, with the prospect of a trade war still looming, uncertainty swirling around North Korea, and tensions in Syria and Iran flaring up,” according to the Journal.
Another issue for gold is that the Federal Reserve meets in June and is widely expected to boost interest rates at that meeting, which would likely be a negative for gold. Over the past several years, gold has often declined heading into Fed meetings when investors widely expected a rate increase.
“Tepper also favors gold as a guard against stagflation, an environment where inflation reaches highs, economic growth slows and unemployment spikes. Tepper’s research points to a recession in mid-2020 followed by a period of stagflation,” according to CNBC.
Although gold prices have fallen in the second quarter, investors have added nearly $830 million to IAU and almost $292 million to GLD since April 1st.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.