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Gold delivered a moderate performance in the past year. However, after wild swings, the metal showed a strong rebound lately. Gold bullion ETF SPDR Gold Shares (GLD - Free Report) added more than 6% this year (as of Mar 20, 2024). We expect the winning trend to continue in the coming days. Let’s delve a little deeper.
Fed Maintains Rate Cut Projections
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.
The Federal Reserve decided to keep interest rates unchanged at its latest policy meeting, maintaining the benchmark rate in the range of 5.25-5.50%. No officials see rates going up in 2024. Despite previous expectations of a lesser number of rate cuts due to recently released hot inflation numbers, the Fed still anticipates the need for three rate cuts in 2024.
This would likely weaken the U.S. dollar and favor gold prices. This has boosted investors’ optimism toward gold investing. The gold bullion ETF GLD was up 1.2% on Mar 20, post Fed meeting. The fund added 0.9% after hours.
Gold as an Inflation-Protecting Asset
The demand for inflation hedge and growing global growth worries are driving investors toward gold, as it is considered a safe haven.India is the world's second-largest consumer of the yellow metal. The demand for gold in India, which has been in the range of 700-800 tons (t) annually since 2019, is expected to increase to 800-900t in the calendar year 2024 on the back of robust economic growth and higher income, according to the World Gold Council (“WGC”).
Central Banks Buying
Central banks in emerging markets are seeking to lower reliance on the U.S. dollar for reserves holdings and are also intending to hedge against inflation. The People’s Bank of China (“PBoC”) wore the crown for the largest single gold buyer, as it reported a total rise of 225t in its gold reserves in 2023. This marked 2023 as the country’s highest single year of reported additions since at least 1977.
Global central bank gold buying lifted annual (net) demand to 1,037t in 2023, just short of the record set in 2022 of 1,082t. Global official sector gold reserves are now estimated to total 36,700t, per WGC. Two back-to-back years of more than 1,000t of buying is proof of the recent strength in central bank demand for gold.
Bottom Line
The gold’s rally from here depends on the Fed’s behavior and the progression of the geopolitical crisis. If the Fed stays put from here or cuts rates, it would be good news for gold investing. Gold investors should closely watch the economic and market events before making any decision.
Hence, investors should track the ETFs like iShares Gold Trust (IAU - Free Report) , abrdn Physical Gold Shares ETF (SGOL - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) and Goldman Sachs Physical Gold ETF (AAAU - Free Report) closely. In a bull-case scenario, investors should track leveraged gold ETF ProShares Ultra Gold (UGL - Free Report) .
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3 Reasons to Play Gold ETFs Now
Gold delivered a moderate performance in the past year. However, after wild swings, the metal showed a strong rebound lately. Gold bullion ETF SPDR Gold Shares (GLD - Free Report) added more than 6% this year (as of Mar 20, 2024). We expect the winning trend to continue in the coming days. Let’s delve a little deeper.
Fed Maintains Rate Cut Projections
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.
The Federal Reserve decided to keep interest rates unchanged at its latest policy meeting, maintaining the benchmark rate in the range of 5.25-5.50%. No officials see rates going up in 2024. Despite previous expectations of a lesser number of rate cuts due to recently released hot inflation numbers, the Fed still anticipates the need for three rate cuts in 2024.
This would likely weaken the U.S. dollar and favor gold prices. This has boosted investors’ optimism toward gold investing. The gold bullion ETF GLD was up 1.2% on Mar 20, post Fed meeting. The fund added 0.9% after hours.
Gold as an Inflation-Protecting Asset
The demand for inflation hedge and growing global growth worries are driving investors toward gold, as it is considered a safe haven.India is the world's second-largest consumer of the yellow metal. The demand for gold in India, which has been in the range of 700-800 tons (t) annually since 2019, is expected to increase to 800-900t in the calendar year 2024 on the back of robust economic growth and higher income, according to the World Gold Council (“WGC”).
Central Banks Buying
Central banks in emerging markets are seeking to lower reliance on the U.S. dollar for reserves holdings and are also intending to hedge against inflation. The People’s Bank of China (“PBoC”) wore the crown for the largest single gold buyer, as it reported a total rise of 225t in its gold reserves in 2023. This marked 2023 as the country’s highest single year of reported additions since at least 1977.
Global central bank gold buying lifted annual (net) demand to 1,037t in 2023, just short of the record set in 2022 of 1,082t. Global official sector gold reserves are now estimated to total 36,700t, per WGC. Two back-to-back years of more than 1,000t of buying is proof of the recent strength in central bank demand for gold.
Bottom Line
The gold’s rally from here depends on the Fed’s behavior and the progression of the geopolitical crisis. If the Fed stays put from here or cuts rates, it would be good news for gold investing. Gold investors should closely watch the economic and market events before making any decision.
Hence, investors should track the ETFs like iShares Gold Trust (IAU - Free Report) , abrdn Physical Gold Shares ETF (SGOL - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) and Goldman Sachs Physical Gold ETF (AAAU - Free Report) closely. In a bull-case scenario, investors should track leveraged gold ETF ProShares Ultra Gold (UGL - Free Report) .