The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products have recently taken their lumps, but there are some factors that could stake rallies for once hot bullion-based ETFs.
Buying of gold by hedge funds and other professional investors along with increased purchasing of gold ETFs has been one of the reasons why the yellow metal is one of this year’s best-performing asset classes.
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Global central banks, some of which are seen as key supporters of gold’s upside, remain buyers of the yellow metal. Actually, central banks have been diligently buying gold since the global financial crisis in 2008.
ETF flows into gold have expanded at their fastest pace since 2009. Physically backed gold ETF holdings are still one-third below the December 2012 peak, which suggest that prices can hold at about $1,200 per ounce.
Goldman Sachs “said they continued to expect U.S. real rates rise into the year-end, weighing on gold prices, but they added that demand for the precious metal will still give some support,” reports CNBC.
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.
SEE MORE: 31 Gold ETFs Investors Should Size Up
Investment in gold jumped to 448 metric tons in the second quarter, or more than double the figure of the same period year-over-year, largely due to a year-over-year increase in ETF investment to 236.8 metric tons, compared to a 23 metric ton outflow the year prior.
“Indeed, we would view a gold sell-off substantially below $1,250 an ounce as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth,” according to part of a Goldman note posted by CNBC.
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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.
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