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3 Reasons Why Gold ETFs Could Surge From Here

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Gold prices jumped in 2024 buoyed by the potential for the US monetary policy easing, a likely decline in the U.S. dollar, increased geopolitical tensions and continuous purchasing by central banks. Gold bullion ETF SPDR Gold Trust (GLD - Free Report) is up 12.3% this year and has advanced 17.74% past year. We believe the long-term prospect for the gold prices are even bullish. Here’s Why.

Falling Output?

John Reade, Chief Market Strategist at the World Gold Council, noted that while there was a notable 4% year-on-year increase in mine production during the first quarter of 2024, the broader trend indicates a plateauing of production since around 2016 to 2018, with no significant growth observed thereafter, as quoted on CNBC.

Mine production nudged up only 0.5% year over year in 2023, gained 1.35% in 2022, grew 2.7% in 2021 and recorded the first decline (down 1%) in a decade in 2020. WGC chief believes that the gold’s decade-long growth story that started in 2008 has been showing a downtrend. New gold deposits are being scare.   

Limited Gold Reserves

Approximately 187,000 metric tons of gold have been mined to date, with the majority originating from countries like China, South Africa, and Australia. The estimated excavatable gold reserves stand at around 57,000 tonnes, as per the United States Geological Survey.

Obtaining government permits for mining operations has become more tough, with the process often requiring long time frame and facing greater scrutiny. Plus, many mining projects are planned for remote areas, necessitating the construction of essential infrastructure such as roads, power, and water systems. These requirements make the overall mining process more complex and time-consuming.

Fed to Cut Rates in September?

The Fed indicated one rate hike this year. The odds of a rate cut in September rose following the CPI report on Jun 12, but the decision hinges on continued improvement in inflation data. There is currently 55% probability of a 25-bp rate cut in September (at the time of writing), up from 46.8% recorded on Jun 11, 2024, per CME FedWatch Tool.

Investors should note that US consumer inflation slowed to 3.3% in May 2024, the lowest in three months, and came lower than forecasts of 3.4%. Core CPI marked the lowest rate since April 2021. Wholesale price increases also fell by 0.2% in May. It was the biggest drop in producer prices since October.

This indicates inflation is cooling in the United States which may goad the Fed to cut rates soon. If The Fed eases policy, the greenback will likely lose strength and bond yields will fall. Both factors should go in favor of the gold investing.

Gold ETFs in Focus

SPDR Gold MiniShares Trust (GLDM - Free Report) , iShares Gold Trust (IAU - Free Report) , iShares Gold Trust Micro (IAUM - Free Report) , GraniteShares Gold Trust (BAR) and Goldman Sachs Physical Gold ETF (AAAU - Free Report) each has gained 12% so far this year.

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