Beyond Coronavirus, What's Driving Gold ETFs?
Zacks Investment Research | Feb 04, 2020 01:00AM ET
Gold had a sizzling January, thanks to the flare-up in equity market volatility and the resultant safe-haven rally. Middle-East tensions and the coronavirus outbreak kept the global markets edgy. Gold bullion ETF SPDR Gold Shares (NYSE:GLD) (TSXV:GLD) added about 4.5% in the month. The global stash of gold in exchange-traded funds touched 5 Gold ETFs Riding the Safe Haven Rally ).
But is it only coronavirus that has been backing gold? The latest investments in bullion-backed ETFs follow four consecutive years of inflows. Below, we discuss a few reasons why gold has more room to run:
Global Policy Easing, Negative Yielding Debt
Most developed and emerging economies have been on a policy easing mode.The pool of securities with a yield below zero reluctance to normalize policy at the Fed, the Bank of Japan and European Central Bank ” have been driving the yellow metal higher. Right now, real U.S. rates are negative, which cuts the opportunity cost of holding bullion, per Bloomberg.
2020 an Election Year
Investors should note that 2020 is a U.S. election year, which is likely to cause enough volatility in the market. Gold price normally gains 8.99% in an election year. In the previous election year too in 2016, GLD had gained about 8%.
Inflation Doesn’t Hurt Gold
The inflationary backdrop in the United States is muted at present. In its latest meeting, the Federal Reserve stressed on the importance 6 Sector ETFs & Stocks to Watch on December U.S. Inflation ).
What If China Fails to Meet Phase-One Trade Deal?
Phase-One Trade Deal to Boost These ETF Areas ).
Per the phase-one trade deal, China has vowed to purchase an additional $200 billion of American goods over the next two years — $52.4 billion worth of energy, $32 billion of agriculture, $37.9 billion of services and Sector ETFs to Watch Out for Until Phase-2 Trade Deal ).
Return of Global Growth Worries
Trade war worries may have subsided a bit at the start of 2020 but fears of a global economic slowdown have returned. In spite of a strong U.S. economy and robust stock markets, more than half of the chief executive officers (CEOs) expect the global economic growth momentum to decelerate this year , per a survey done by PwC and released at the World Economic Forum in Davos, Switzerland.
Among 1,600 CEOs across 83 countries, 53% saw a decline in economic growth in 2020. Just a year ago, 57% expected an improvement in GDP growth. The latest fear of slowdown also compounded with the International Monetary Fund (IMF) Economic Slowdown in 2020? ETF Strategies to Help You ).
ETFs in Focus
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Against this backdrop, investors can keep track of regular gold ETFs like GLD, iShares Gold Trust all precious metals ETFs here).
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