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Time to Tap the Undervalued Status of Gold? ETFs in Focus
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Gold bullion ETF SPDR Gold Shares (GLD - Free Report) was up 17.6% in 2019 and 24.4% in 2020. So far this year, the bullion ETF has lost 1.3% against 10.7% gains in the S&P 500. 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 is still a “relatively cheap” investment opportunity and could continue gaining even if it tops $1,900 per troy ounce, per TD Securities head of global strategy Richard Kelly, as quoted on CNBC.
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 for a while due to a lackluster job picture.
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. If inflation picks up at any point of time, that would be great for gold investing as the yellow metal is often viewed as a hedge against inflation.
Greenback to Lose Strength?
Gold prices are priced in the U.S. dollar and hence a weaker dollar is beneficial for a gold rally. At the start of this year, “global growth should be very strong over the next six months as the vaccination campaigns play out, Goldman Sachs Group Inc. strategists including Zach Pandl and Kamakshya Trivedi wrote in a note. “We expect global cyclical forces to dominate some degree of ‘U.S. outperformance’, resulting in dollar downside for most crosses," as quoted on Bloombergquint.
Overvaluation Concerns in Markets
Although there are reasons for such a rally as vaccine distribution boosted the faster-than-expected recovery, the bubble fear is also brewing. However, if the market crashes on profit booking or overvaluation concerns, gold will see some opportune moments.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold ETFs like (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL) and SPDR Gold MiniShares Trust (GLDM) , and leveraged ETFs like DB Gold Double Long ETN (DGP) and ProShares Ultra Gold (UGL) (see all precious metals ETFs here).
Bottom Line
Having said this, we would like to note that current scenario is not in favor of gold investing as the greenback is gaining strength and stock market is rallying. However, gold investors should closely watch the economic and market events before taking any decisions.
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Time to Tap the Undervalued Status of Gold? ETFs in Focus
Gold bullion ETF SPDR Gold Shares (GLD - Free Report) was up 17.6% in 2019 and 24.4% in 2020. So far this year, the bullion ETF has lost 1.3% against 10.7% gains in the S&P 500. 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 is still a “relatively cheap” investment opportunity and could continue gaining even if it tops $1,900 per troy ounce, per TD Securities head of global strategy Richard Kelly, as quoted on CNBC.
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 for a while due to a lackluster job picture.
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. If inflation picks up at any point of time, that would be great for gold investing as the yellow metal is often viewed as a hedge against inflation.
Greenback to Lose Strength?
Gold prices are priced in the U.S. dollar and hence a weaker dollar is beneficial for a gold rally. At the start of this year, “global growth should be very strong over the next six months as the vaccination campaigns play out, Goldman Sachs Group Inc. strategists including Zach Pandl and Kamakshya Trivedi wrote in a note. “We expect global cyclical forces to dominate some degree of ‘U.S. outperformance’, resulting in dollar downside for most crosses," as quoted on Bloombergquint.
Overvaluation Concerns in Markets
Although there are reasons for such a rally as vaccine distribution boosted the faster-than-expected recovery, the bubble fear is also brewing. However, if the market crashes on profit booking or overvaluation concerns, gold will see some opportune moments.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold ETFs like (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL) and SPDR Gold MiniShares Trust (GLDM) , and leveraged ETFs like DB Gold Double Long ETN (DGP) and ProShares Ultra Gold (UGL) (see all precious metals ETFs here).
Bottom Line
Having said this, we would like to note that current scenario is not in favor of gold investing as the greenback is gaining strength and stock market is rallying. However, gold investors should closely watch the economic and market events before taking any decisions.
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 >>