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Will Gold Get Its Glitter Back in Q4? ETFs in Focus
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Gold bullion ETF SPDR Gold Shares (GLD - Free Report) was up 17.6% in 2019, 24.4% in 2020. So far this year, the bullion ETF has lost 6% against 16.2% 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.
Greenback to Remain Subdued?
Gold prices are priced in the U.S. dollar and hence a weaker dollar is beneficial for a gold rally. While the Fed taper talks may boost interest rates in the coming months and boost the greenback strength, the Fed is less likely to raise interest rates in the medium term. This means one should not expect an enormous rally in the U.S. dollar, which should augur well for the broad-based commodity investing (read: 5 Reasons for the Commodity Boom: ETFs to Play).
Rising Inflation a Plus for Commodities
If this was not enough, reflation trade was palpable across the globe with the United States and Europe drawing attention lately. Gold is historically viewed as a hedge against inflation. The annual inflation rate in the US edged up to a 13-year high of 5.4% in September of 2021 from 5.3% in August and above market expectations of 5.3%. Moreover, higher inflation is feared to weaken corporate earnings, which in turn, would hurt equity prices. In such a scenario, gold may gain as an alternative investment.
Return of Global Growth Worries on Rising Energy Prices?
A global energy crunch is expected to boost oil demand by half a million barrels per day (bpd) and could boost inflation and slower the world's recovery from the COVID-19 pandemic, the International Energy Agency (IEA) said this week, as quoted on Reuters. "Higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery," indicated IEA.
Festive Season in India
India is one of the key buyers of gold. Withfestivities taking a beating in 2020 due to Covid-19, more people in India are likely to buy gold this year. This is because more people are vaccinated this year and the pandemic looks relatively under control, per experts.
An Undervalued Asset?
Gold is now a relatively cheap investment opportunity with losses so far in 2021. If the equity rally halts and corrects ahead on rising rate worries or overvaluation concerns, one may find safety in gold investing.
Having said this, we would like to note that current scenario is still not fully in favor of gold investing as the stock market is rising and the greenback may gain a near-term strength. However, gold investors should closely watch the economic and market events before taking any decisions.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold bullion ETFs like GLD, GraniteShares Gold Trust (BAR - 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) . GLD charges 40 bps in fees. The expense ratio of BAR is 0.17%. IAU, SGOL and GLDM charge 25 bps, 17 bps and 18 bps in fees, respectively.
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Will Gold Get Its Glitter Back in Q4? ETFs in Focus
Gold bullion ETF SPDR Gold Shares (GLD - Free Report) was up 17.6% in 2019, 24.4% in 2020. So far this year, the bullion ETF has lost 6% against 16.2% 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.
Greenback to Remain Subdued?
Gold prices are priced in the U.S. dollar and hence a weaker dollar is beneficial for a gold rally. While the Fed taper talks may boost interest rates in the coming months and boost the greenback strength, the Fed is less likely to raise interest rates in the medium term. This means one should not expect an enormous rally in the U.S. dollar, which should augur well for the broad-based commodity investing (read: 5 Reasons for the Commodity Boom: ETFs to Play).
Rising Inflation a Plus for Commodities
If this was not enough, reflation trade was palpable across the globe with the United States and Europe drawing attention lately. Gold is historically viewed as a hedge against inflation. The annual inflation rate in the US edged up to a 13-year high of 5.4% in September of 2021 from 5.3% in August and above market expectations of 5.3%. Moreover, higher inflation is feared to weaken corporate earnings, which in turn, would hurt equity prices. In such a scenario, gold may gain as an alternative investment.
Return of Global Growth Worries on Rising Energy Prices?
A global energy crunch is expected to boost oil demand by half a million barrels per day (bpd) and could boost inflation and slower the world's recovery from the COVID-19 pandemic, the International Energy Agency (IEA) said this week, as quoted on Reuters. "Higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery," indicated IEA.
Festive Season in India
India is one of the key buyers of gold. Withfestivities taking a beating in 2020 due to Covid-19, more people in India are likely to buy gold this year. This is because more people are vaccinated this year and the pandemic looks relatively under control, per experts.
An Undervalued Asset?
Gold is now a relatively cheap investment opportunity with losses so far in 2021. If the equity rally halts and corrects ahead on rising rate worries or overvaluation concerns, one may find safety in gold investing.
Having said this, we would like to note that current scenario is still not fully in favor of gold investing as the stock market is rising and the greenback may gain a near-term strength. However, gold investors should closely watch the economic and market events before taking any decisions.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold bullion ETFs like GLD, GraniteShares Gold Trust (BAR - 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) . GLD charges 40 bps in fees. The expense ratio of BAR is 0.17%. IAU, SGOL and GLDM charge 25 bps, 17 bps and 18 bps in fees, respectively.