Fed Rate Hike, Inflation Expectations Lift Gold ETFs
Gold exchange traded funds could strengthen as a slower U.S. economy pushes off a Federal Reserve interest rate hike and inflation expectations begin to rise.
On Tuesday, the SPDR Gold Shares (GLD) rose 0.3%, iShares Gold Trust (IAU) added 0.4% and ETFS Physical Swiss Gold Shares (SGOL) returned 0.4%. The gold ETFs have remained relatively flat so far this year. [Rising Chinese Demand Supporting Gold ETFs]
COMEX gold futures were up 0.6% Tuesday, trading around $1,193.3 per ounce.
Weakness in retail sales, industrial production and first-quarter gross domestic product growth are weighing on the U.S. economic outlook, and investors are waiting on Friday’s U.S. nonfarm payroll data to solidify expectations on further delays in a Fed rate hike, reports Ira Iosebashvili for the Wall Street Journal.
A prolonged low-rate environment would support gold prices as a tighter monetary policy typically strengthens the U.S. dollar and keeps inflationary pressures in check.
Gold has also been strengthening after the U.S. dollar depreciated against a basket of foreign currencies – consumers and investors are able to acquire more USD-denominated gold for less if the dollar currency weakens.
”We still think the dollar’s decline has more room to go, as does the slowdown in the U.S. economy,” Edward Meir, an analyst at INTL FCStone, said in the WSJ article. “Both should offer gold an element of support going forward.”
Moreover, inflation expectations are rising again after a rebound in oil prices, reports Debarati Roy for Bloomberg.
Gold is also used as a safe store of wealth when inflationary pressures diminish the value of dollar.
“Inflation expectations have been picking up, and gold is moving along with higher oil prices,” Edward Dempsey, the chief investment officer at Pension Partners LLC in New York, said in a telephone interview. “Higher oil and gold prices dovetailed with higher yields are confirmation that the market sees inflation rising.”
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Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of GLD.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
