Back to top

ETF News And Commentary

Having lost their shine a little bit in the past few days, gold ETFs got a boost on Wednesday after the Fed kept key interest rates unchanged following its two-day policy meeting. However, it kept the door open for a rate hike this year .but the chances of it happening before December’s policy meeting are minimal. A low rate environment and a bright outlook are expected to boost gold ETFs further in the near term.

No Rate Hike

After its two-day policy meeting, Federal Open Market Committee (FOMC) decided not to hike key interest rate but hinted that a rate hike may occur by the end of this year. The Committee felt that the U.S. economy witnessed an impressive rebound in recent times after dismal a first half on the back of strong gains in personal income and healthy jobs market growth (read: 6 ETF Areas to Watch as Fed Meeting Starts).

In her press conference, Fed Chair Janet Yellen said: “We judged that the case for an increase had strengthened but decided for the time being to wait for continued progress toward our objectives.” The Fed forecast indicated that majority of the Fed officials now feel that December hike is quite possible. Yellen said: “Most participants do expect that one increase in the federal funds rate will be appropriate this year.”

Low Rate: A Boon for Gold

Fed’s decision to keep rates unchanged proved to be beneficial for gold yesterday. Price of December gold futures rose 1% to $1,331.40 per ounce following Fed’s decision, witnessing gains for third consecutive session. Meanwhile, the unexpected move by the Bank of Japan to set target for yields on 10-year sovereign bond also had a positive impact on gold prices. The low-rate environment is speculated to boost the demand for gold as yield hungry investors give precedence to this safe-haven asset over other securities.

Moreover, a decline in the U.S. dollar against major currencies also played an important role in boosting gold price on Wednesday. It is speculated that gold is likely to win ahead with rock-bottom interest rates prevailing in most part of the world. Even if the Fed hikes rates ahead, it would not likely be more than 0.25%, which can be digested by the market (read: Fed or Trump: Who Will Decide the Fate of Gold ETFs?).

Outlook Remains Favorable

Some analysts believe that despite the surge for the most part of the year, gold prices still have some scope to register healthy growth. The founder of McEwen Mining Inc. (MUX - Snapshot Report) and Goldcorp Inc. (GG - Analyst Report) , Robert McEwen predicted that prices could skyrocket, increasing 44% by the end of 2016. He expects prices to trade between $1,700 and $1,900 an ounce by the end of the year.

McEwen also believes that there are factors that could work in gold’s favor. These catalysts range from the uncertainty surrounding the U.S. Presidential election and the instability faced by banks. The recent dip in prices also steers clear of overvaluation concerns in gold, giving it a fresh way to run. There are analysts who still foresee a $1,400-an-ounce level later this year. According to UBS, the bullion could rally to $1,500 an ounce in 2017 (read: 5 Reasons Why Gold ETFs Can Regain Their Mojo).

Gold ETFs that Gained

The ETFs that primarily track performance of gold performed well on Wednesday following the Fed decision. The largest ETF in this space, SPDR Gold Shares (GLD - ETF report) gained 1.5%. Moreover, other players including iShares Gold Trust (IAU - ETF report) , PowerShares DB Gold ETF (DGL - ETF report) and VanEck Merk Gold Trust (OUNZ - ETF report) rose 1.4%, 1.5% and 1.5%, respectively (see all Precious Metals ETFshere).

These ETFs also registered healthy gains over the past three-month periods. GLD, IAU, DGL and OUNZ rose 5.3%, 5.3%, 4.5 and 5.3%, respectively, over the time period. These funds also have Zacks ETF Rank #3 (Hold) with Medium risk outlook, which implies that they have scope for further improvement.

Want more information on the world of ETFs?

Make sure to check out the podcast below where we discuss the investing landscape with Kevin O’Leary and Connor O’Brien of O’Shares Investments: