Trump Tariff Talk Lifts Gold ETFs

MarketsETF Trends

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.

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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.

Related: Gold Investing for ETF Leprechauns

On Thursday, when broader U.S. equity indexes plunged, the VanEck Vectors Steel ETF (NYSEArca: 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 22nd, 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.

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