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Gold prices have been under pressure this year with the biggest gold bullion ETF SPDR Gold Shares (GLD - Free Report) losing about 5.7% in the past three months (as of Apr 13, 2021). While the start of the year hasn’t been great, the end could leave the yellow metal in the green if some factors hold good. Let’s delve a little deeper.
Gold An Inflation-Hedge Asset
Gold prices rebounded this week after data revealed a rise in U.S. inflation. The inflationary backdrop in the United States is favorable for gold as the metal is historically viewed as a hedge against inflation. The annual inflation rate in the United States jumped to 2.6% in March of 2021 from 1.7% in February, slightly above market expectations of 2.5%. It marked the highest reading since August of 2018.
Rising inflation often lowers the value of the concerned currency. The U.S. dollar has been trading at a multi-week lows against the euro and the yen. If the greenback remains subdued, gold will gain some glitter back.
Dovish Central Banks
The Fed has been acting super-dovish since March 2020. It has a zero-rate policy and a bond-buying program in place. Fed chair Powell indicated that rates will remain lower as the economy is yet to heal from the coronavirus-induced disaster. Along with the Fed, several other central banks have also resorted to a super-easy monetary policy. This should boost inflation in the coming days and favor gold investing.
Return of Global Growth Worries on Rising COVID cases& Vaccine Setback
Fears of a global economic slowdown have returned on rising COVID-19 cases. In spite of a strong U.S. economic growth and robust stock markets, demand for safe-haven assets should remain strong in the near term. One of the key gold consuming economies – India – has been witnessing exponential rise in COVID cases. There have been fresh lockdowns in Europe. If this not enough, tax hike talks in the United States may also bring safe-haven assets back on the table.
Plus, there has been fresh uncertainty on the vaccine front as the government received medical advice against using the AstraZeneca vaccine for people under 50 due to the some risk of blood clots. Most immediately, the demand for Pfizer shot will rise now, which may cause delays. Overall, such a development will likely cause a deterioration in the global growth momentum.
ETFs in Focus
Investors who missed the rally in gold ETFs in 2020, may now take a closer look at the asset. Any negative news on the global front will make the yellow metal a star again.
Against this backdrop, investors can keep track of regular gold ETFs like GLD, iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL - Free Report) and SPDR Gold MiniShares Trust (GLDM - Free Report) , and leveraged ETFs like DB Gold Double Long ETN (DGP - Free Report) and ProShares Ultra Gold (UGL - Free Report) .
And if the above-mentioned factors do not fall in place, then one can bet on the inverse gold product ProShares UltraShort Gold (GLL - Free Report) and make some quick gains.
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3 Reasons Why Gold ETFs Could Gain Higher
Gold prices have been under pressure this year with the biggest gold bullion ETF SPDR Gold Shares (GLD - Free Report) losing about 5.7% in the past three months (as of Apr 13, 2021). While the start of the year hasn’t been great, the end could leave the yellow metal in the green if some factors hold good. Let’s delve a little deeper.
Gold An Inflation-Hedge Asset
Gold prices rebounded this week after data revealed a rise in U.S. inflation. The inflationary backdrop in the United States is favorable for gold as the metal is historically viewed as a hedge against inflation. The annual inflation rate in the United States jumped to 2.6% in March of 2021 from 1.7% in February, slightly above market expectations of 2.5%. It marked the highest reading since August of 2018.
Rising inflation often lowers the value of the concerned currency. The U.S. dollar has been trading at a multi-week lows against the euro and the yen. If the greenback remains subdued, gold will gain some glitter back.
Dovish Central Banks
The Fed has been acting super-dovish since March 2020. It has a zero-rate policy and a bond-buying program in place. Fed chair Powell indicated that rates will remain lower as the economy is yet to heal from the coronavirus-induced disaster. Along with the Fed, several other central banks have also resorted to a super-easy monetary policy. This should boost inflation in the coming days and favor gold investing.
Return of Global Growth Worries on Rising COVID cases& Vaccine Setback
Fears of a global economic slowdown have returned on rising COVID-19 cases. In spite of a strong U.S. economic growth and robust stock markets, demand for safe-haven assets should remain strong in the near term. One of the key gold consuming economies – India – has been witnessing exponential rise in COVID cases. There have been fresh lockdowns in Europe. If this not enough, tax hike talks in the United States may also bring safe-haven assets back on the table.
Plus, there has been fresh uncertainty on the vaccine front as the government received medical advice against using the AstraZeneca vaccine for people under 50 due to the some risk of blood clots. Most immediately, the demand for Pfizer shot will rise now, which may cause delays. Overall, such a development will likely cause a deterioration in the global growth momentum.
ETFs in Focus
Investors who missed the rally in gold ETFs in 2020, may now take a closer look at the asset. Any negative news on the global front will make the yellow metal a star again.
Against this backdrop, investors can keep track of regular gold ETFs like GLD, iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL - Free Report) and SPDR Gold MiniShares Trust (GLDM - Free Report) , and leveraged ETFs like DB Gold Double Long ETN (DGP - Free Report) and ProShares Ultra Gold (UGL - Free Report) .
And if the above-mentioned factors do not fall in place, then one can bet on the inverse gold product ProShares UltraShort Gold (GLL - Free Report) and make some quick gains.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>