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Recession, Lower Rates and Yields: A Recipe for Gold Gains

This article was originally published on ETFTrends.com.

The last six weeks have been kind to gold prices as fears of a global economic slowdown are forcing investors to allocate capital into safe-haven assets like precious metals. Additionally, it's been three primary ingredients that have been fueling gains for gold, according to John Davi, founder and chief investment officer of Astoria Portfolio Advisors.

“One is you’ve got recession risks that have gone up. Two, you’ve had rates that have been trending lower,” said Davi on CNBC’s “ETF Edge.” “And the third reason, if you look at 10-year real yields, [they’ve] gone from 1.2[%] to 25 basis points.”

Gold ETFs to Consider

For many investors, gold is the standard in precious metal investing, which has become more accessible than ever thanks to options via an exchange-traded fund (ETF) wrapper like the  SPDR Gold MiniShares (GLDM) .

In 2018, rising interest rates that coincided with an extended bull run in U.S. equities for most of the year fueled a strong dollar, tamping down gains for gold. However, when investors got washed in a cycle of volatility that started in the fall and lasted through year’s end, investors were quick to reconsider the precious metal as a safe haven, which helped ETFs like the SPDR Gold Shares (GLD) --an industry leader with a $34 billion market cap.

GLD is also a favorite for short-term traders with its high liquidity.

“If you’ve got to day trade this, if you need to put 100,000 shares through fast, GLD, of course, is going to be your institutional favorite," said Dave Nadig, managing director of ETF.com.

Adding precious metals to a portfolio certainly speaks to the diversification benefits of gold, among other things. However, with gold trading at over $1,400 an ounce and GLD having a share price of over $130 as of July 22, investors who feel they might be priced out of this asset can look to a low-cost solution like GLDM.

"GLDM has a low yearly management fee," said Greg Collett, Director of Investment Products at the World Gold Council. "It was squarely-aimed at the long-term holding, buy-and-hold gold investor."

GLDM recently celebrated its one-year anniversary near the end of June. GLDM is up 10.62 percent year-to-date and 15.61 percent the past year, according to Morningstar performance figures.

“The success of GLDM in accumulating assets under management of around three quarters of a billion dollars in less than a full year of operation supports the view that this was the right product at the right time,” Milling-Stanley said. “Investors across the whole universe of ETFs were seeking lower share prices and lower expense ratios, and GLDM has clearly satisfied this search.”

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