Gold Could Again be a Valid Long-Term Play

MarketsETF Trends

Recently, 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 encountered some trouble induced by the Federal Reserve, but gold and gold ETFs remain among this year’s best-performing asset classes.

Some market observers believe this year could be just the beginning of another lengthy bull market for the yellow metal. 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.

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Looking ahead, investors will be waiting on Wednesday’s minutes from the most recent Federal Open Market Committee meeting. If the FOMC minutes reveal a more hawkish Fed stance with an imminent interest rate hike, gold assets could take a major blow. Consequently, traders may consider short or inverse gold ETF options to hedge against a potential turn.

SEE MORE: How to Prepare for a Possible Gold ETF Pullback

“Gold will likely soar to a record within five years as asset bubbles burst in everything from bonds to credit and equities, forcing investors to find a haven, according to Old Mutual Global Investors’ Diego Parrilla,” reports Ranjeetha Pakiam for Bloomberg.

However, it must be noted that the Fed did not give a specific timeframe for when it could raise rates again. As investors have already learned this year with gold and gold miners, the longer rates stay low, the better for gold-related assets.

Some market observers see gold continuing to move higher through the latter stages of 2016.

Fed funds futures imply limited probability the central bank will raise rates later this month, leading some market observers to say that, at most, there will be just one rate hike this year. Even that happens, some bond traders believe the Fed will not raise rates again until late 2017.

SEE MORE: 31 Gold ETFs Investors Should Size Up

“Parrilla joins a slew of investors who are bullish on gold because of low borrowing costs and central-bank bond buying. Billionaire bond-fund manager Bill Gross has said there’s little choice but gold and real estate given current bond yields, while Paul Singer, David Einhorn and Stan Druckenmiller have all expressed reasons this year for owning the metal,” according to Bloomberg.

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

SPDR Gold Shares

Tom Lydon’s clients own shares of GLD.

This article was provided by our partners at ETFTrends.