The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold ETFs are up more than 2% over the past week, but the yellow’s metal rally may just be getting started.
On Monday, Goldman Sachs issued a bullish call on gold, noting that the yellow metal can actually be resilient in the face of higher U.S. interest rates.
“Our commodities team believes that the dislocation between the gold prices and U.S. rates is here to say,” according to Goldman Sachs. “Based on empirical data for the past six tightening cycles, gold has outperformed post rate hikes four times.”
Gold’s recent bullishness is impressive when considering that the Federal Reserve raised interest rates earlier this month, setting the stage for two more rate hikes later this year. However, the yellow metal has been boosted by the dollar’s disappointing showing this year.
Technicals Look Good
“Gold has broken out on a technical basis, due in part to a more dovish-than-anticipated Federal Reserve, trade war concerns brewing in Washington and a relatively weaker U.S. dollar,” reports CNBC. “Gold is trading at an attractive juncture, just below its 2017 peak, and may be expected to move higher in the coming weeks. Gold has gained 3.5 percent this year.”
Some traders are taking advantage of higher gold prices with gold miners ETFs, including the VanEck Vectors Gold Miners ETF (NYSEArca: GDX), the largest exchange traded fund dedicated to gold mining stocks.
Related: Gold Investing for ETF Leprechauns
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well, but those fundamentals could be glossed over if the dollar strengthens.
“Investors have recently piled into one popular gold miners exchange-traded fund, the GDX. These flows increased the fund’s assets by its highest level since late 2017,” according to CNBC. “Gold miners are cheap relative to spot gold, and may be one way to gain exposure to gold.”
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.