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Trump Tariff Talk Lifts Gold ETFs

This article was originally published on ETFTrends.com.

The  SPDR Gold Shares (NYSEArca: GLD) , iShares Gold Trust (NYSEArca: IAU) and other gold-backed exchange traded products rallied last week as investors sought safe-haven assets amid fears of trade wars related to the White House's tariff plans.

President Donald Trump ordered tariffs on Chinese goods, describing the US trade deficit with China as “out of control.” The trade crackdown is a big deal because the United States and China are the world’s two biggest economies. A major slowdown in trade could darken the otherwise bright economic outlook.

“President Trump's new $60 billion tariffs on a raft of Chinese imports to the US may be met with $3bn of tariffs on 128 US products, Beijing's state-run Xinhua news agency said, 'including pork, wine, and seamless steel tubes,'” reports BullionVault.

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On Thursday, when broader U.S. equity indexes plunged, the VanEck Vectors Steel ETF (SLX) tumbled Thursday after the White House unveiled a diluted version of its original tariff plan, which previously sparked domestic steelmakers higher.

Gold's Safe-Haven Status

For gold investors, tariff jitters took precedent over the interest rate hike recently announced by the Federal Reserve, a move that could have weighed on bullion and ETFs like GLD and IAU, but did not.

Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.

“Gold prices typically move in the opposite direction to interest rates, showing an average correlation on a 52-week basis of minus 0.44 since 2003 with inflation-adjusted 5-year US bond yields,” according to BullionVault. “Over the last 52 weeks however, gold's co-movement with real rates has flipped to a correlation of +0.43 on BullionVault's analysis today – the strongest positive connection since the end of 2006, when US home prices began to turn south, destroying sub-prime mortgage bond investments and –helping spur the global financial crisis of 2007-2012.”

For the week ended March 22 nd , investors added $522.38 million to GLD, the third-best total among all US-listed ETFs.

For more information on the gold market, visit our gold category.

Tom Lydon’s clients own shares of GLD.