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Time to Buy Leveraged Gold ETFs on Safe-Haven Bid?
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Gold has been subdued this year after a lackluster 2022. Higher rates and a strong U.S. dollar have faded the yellow metal’s allure. However, the latest Middle East conflict between Israel and Palestine boosted the safe-haven demand and dragged down U.S. treasury bond yields, facilitating the gold prices.
Gold prices tend to move inversely to interest rates. When interest rates decline, non-interest-bearing gold becomes more attractive as it competes more favorably with interest-bearing investments like bonds. Gold bullion ETF SPDR Gold Shares (GLD - Free Report) added 0.7% on Oct 11 and advanced 0.4% afterward.
Gold is often viewed as a hedge against market risk. In times of geopolitical tension, it is normal to seek a flight to safety, which is why we have been seeing the demand for gold bullion going up. Israel declared war on Hamas after the Palestinian militant group staged a surprise attack over the weekend. The Middle East crisis, in tun, dragged down the benchmark U.S. treasury bond yields as the demand for U.S. treasuries rose because this is too is seen as a market risk hedge.
If this was not enough, dovish comments from two Fed officials hinted that the recent surge in bond yields could result in the tightening of credit conditions the central bank intends to achieve. That could give policymakers a chance to put an end to the ongoing policy tightening cycle, per some analysts. The likelihood for lower bod yields went in favor of the gold bullion investing (read: Time to Buy Leveraged Treasury Bond ETFs?).
Solid Central Bank Interest
Physical demand for gold remains robust, fueled by central bank purchases and consumer demand. Central banks from emerging markets continue to diversify their reserves by acquiring gold, reflecting their confidence in the metal's enduring value. Additionally, improving economic conditions in key consuming countries like India have driven a rebound in gold jewelry demand.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold ETFs like SPDR Gold Shares (GLD - Free Report) , 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 GraniteShares Gold Shares (BAR - Free Report) .
Investors can also play the leveraged gold bullion ETFs like ProShares Ultra Gold (UGL - Free Report) and DB Gold Double Long Exchange Traded Notes (DGP - Free Report) . As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may force these products to deviate significantly from the expected long-term performance figures.
Bottom Line
The gold’s rally from here depends on the Fed’s behavior and progression of global inflation. Having said this, we would like to note that the current scenario is not in favor of gold investing fully as the greenback is still in solid shape. Gold investors should closely watch the economic and market events before taking any decision.
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Time to Buy Leveraged Gold ETFs on Safe-Haven Bid?
Gold has been subdued this year after a lackluster 2022. Higher rates and a strong U.S. dollar have faded the yellow metal’s allure. However, the latest Middle East conflict between Israel and Palestine boosted the safe-haven demand and dragged down U.S. treasury bond yields, facilitating the gold prices.
Gold prices tend to move inversely to interest rates. When interest rates decline, non-interest-bearing gold becomes more attractive as it competes more favorably with interest-bearing investments like bonds. Gold bullion ETF SPDR Gold Shares (GLD - Free Report) added 0.7% on Oct 11 and advanced 0.4% afterward.
Gold is often viewed as a hedge against market risk. In times of geopolitical tension, it is normal to seek a flight to safety, which is why we have been seeing the demand for gold bullion going up. Israel declared war on Hamas after the Palestinian militant group staged a surprise attack over the weekend. The Middle East crisis, in tun, dragged down the benchmark U.S. treasury bond yields as the demand for U.S. treasuries rose because this is too is seen as a market risk hedge.
If this was not enough, dovish comments from two Fed officials hinted that the recent surge in bond yields could result in the tightening of credit conditions the central bank intends to achieve. That could give policymakers a chance to put an end to the ongoing policy tightening cycle, per some analysts. The likelihood for lower bod yields went in favor of the gold bullion investing (read: Time to Buy Leveraged Treasury Bond ETFs?).
Solid Central Bank Interest
Physical demand for gold remains robust, fueled by central bank purchases and consumer demand. Central banks from emerging markets continue to diversify their reserves by acquiring gold, reflecting their confidence in the metal's enduring value. Additionally, improving economic conditions in key consuming countries like India have driven a rebound in gold jewelry demand.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold ETFs like SPDR Gold Shares (GLD - Free Report) , 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 GraniteShares Gold Shares (BAR - Free Report) .
Investors can also play the leveraged gold bullion ETFs like ProShares Ultra Gold (UGL - Free Report) and DB Gold Double Long Exchange Traded Notes (DGP - Free Report) . As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may force these products to deviate significantly from the expected long-term performance figures.
Bottom Line
The gold’s rally from here depends on the Fed’s behavior and progression of global inflation. Having said this, we would like to note that the current scenario is not in favor of gold investing fully as the greenback is still in solid shape. Gold investors should closely watch the economic and market events before taking any decision.