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Gold ETFs Rally As Low Rates And Uncertainty Worry Markets

Ian Young

This article was originally published on ETFTrends.com.

With stocks struggling to make it back toward recent highs, with technology stocks as an obvious exception, the gold market made a solid move higher on Tuesday and is looking to test the May highs in the overnight futures market, lifting gold ETFs with it.

The gold market continues to see strong momentum, trading above $1,786.50 an ounce and rising, a gain of more than1% on Tuesday, amid an increasing tally of U.S. consumers bought more new homes than expected last month.

New home sales rose 16.6% last month to a seasonally adjusted annualized rate of 676,000 homes, the U.S. Commerce Department said Tuesday. April’s sales were revised to a rate of 580,000. Market consensus projected sales to be around 637,000 units.

Despite investors flocking to technology stocks, driving the Nasdaq to new highs Tuesday, there are still a growing number of coronavirus cases, which has created unease about the country reopening, as well as brewing concern over trade rumors with China.

Investors typically rush to gold as they grow more fearful of a stock market rout, and a spike of more than 30% in coronavirus cases over the last week throughout the US generated new worries of a prolonged recession over the weekend. Florida recorded three straight days of record-high case counts, while North Carolina, Texas, and Arizona posted similarly dismal testing data.

“Although brief, the downturn has been fiercer than anything seen previously, leaving a deep scar which will take a long time to heal. We anticipate that the US economy will contract by just over 8% in 2020. The coming months will, therefore, see the focus turn to just how much recovery momentum the economy can muster to recoup this lost output,” said Chris Williamson, Chief Business Economist at IHS Markit. “Any return to growth will be prone to losing momentum due to persistent weak demand for many goods and services, linked in turn to ongoing social distancing, high unemployment and uncertainty about the outlook, curbing spending by businesses and households. The recovery could also be derailed by new waves of virus infections.”

Stocks rallied on early Tuesday after a volatile overnight session amid comments from White House trade advisor Peter Navarro concerning a possible nullification of the trade deal with China which tanked Dow futures had dropped about 400 points overnight after Navarro’s Monday interview on Fox News’ “The Story.”

Fox’s Martha MacCallum asked, “Do you think that the president sort of … I mean, he obviously really wanted to hang onto this trade deal as much as possible. And he wanted them to make good on the promises because there had been progress made on that trade deal, but given everything that’s happened and all the things you just listed, is that over?”

“It’s over. Yes,” Navarro responded.

In his subsequent statement, Navarro said, “I was simply speaking to the lack of trust we now have of the Chinese Communist Party after they lied about the origins of the China virus and foisted a pandemic upon the world.”

“My comments have been taken wildly out of context,” Navarro added. “They had nothing at all to do with the Phase I trade deal, which continues in place.” This clarification sent stock futures back higher.

While stocks made a recovery early in the day, they relinquished some of this gains into the close, potentially further pushing gold higher as investors fled to safety.

Gold recently spiked on from the expectation of low rates remaining for years, as Federal Reserve policymakers uncovered in June that they project historically low interest rates to continue through at least through 2022 to maintain a healthy economic recovery. Such forecasts often bolster gold's relative value for investors thirsty for higher yield.

As a result, investors continue flocking to gold ETFs, such as the SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares Trust (NYSEArca: GLDM), as low interest rates and accommodative monetary policies bolster bullion’s allure.

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