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Can Gold ETFs Regain Shine in 2017?

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After the post-election sell-off, gold has started 2017 on a bright note. Last week, the yellow metal broke through the crucial level of $1,200 for the first time in two months.

In general, gold and other safe-haven assets gain in an uncertain environment. That’s why investors had dumped gold when election uncertainty ended. On the other hand, the US dollar had gained on hopes of faster economic growth and higher interest rates in the US.

Of late, there are increasing concerns about incoming administration’s policies, particularly after Trump’s first press conference, which revealed little about his policy plans. Many investors believe that the market has priced in the best-case scenario and there is a lot of scope for disappointment if Trump is not able to deliver on his promises.

This led to a weakening in the dollar and benefitted gold which moves inversely to the dollar. Brexit related uncertainty and higher demand from China ahead of the Lunar New Year also aided gold.

Gold can continue to slowly climb higher in the coming months unless the dollar rebounds strongly. Geopolitical uncertainty is expected to increase this year as three major countries in the Euro-zone hold elections. Some populist candidates have been gaining in polls, leading to questions about the future of the Euro-zone. Further there is rising risk of a global trade war. However rising rates in the US could cap gold’s gains.

Overall, I don’t expect a strong rebound in gold this year but I also believe that we might have seen the bottom already. Investors could consider a small position in gold, about 5% of total portfolio, mainly due to its diversification benefits.

To learn more about physically backed gold ETFs and gold mining ETFs, please watch the short video below.

 

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