Gold ETFs Could See Unprecedented Bullishness
Fri Mar 22 2024
Even without much assistance from the Federal Reserve in the form of interest rate cuts, gold is performing well to start 2024. The largest physically backed exchange traded fund in the category is up 5.65% year to date, and 12% over the past 12 months.
Impressive tallies to be sure, but some market observers believe the yellow metal has more upside ahead, an outlook buoyed by some unique circumstances. That could be efficacious for ETFs such as the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN). That actively managed fund provides exposure to both gold futures contracts and shares of mining companies.
That dual exposure is unique relative to traditional gold ETFs and could be beneficial should mining equities attempt to catch up to spot gold prices and if more retail investors enter the precious metal’s market.
Catalysts Abound for GDMN, Gold Prices
Currently, the yellow metal is in the midst of its third significant bull market in the past 20 years. However, many smaller investors missed the first tw,o and some market observers believe those market participants won’t make the same mistake a third time. Assuming they enter the market, GDMN could benefit due to its two-pronged approach.
“The first two (2004-2011; 2015-2020) saw big inflows to gold ETFs. But households have missed this rally: total ETF gold holdings, a proxy for investor demand, have fallen by 25%, implying a price around $1600-1700,” according to Bank of America research.
The bank noted if real yields decline, more investors could enter the metal’s market, potentially pushing prices as high as $2,500 or $2,600 per troy ounce. Should a move like that materialize, GDMN’s futures exposure could support upside for the ETF.
The current rally in equities could also be beneficial to the precious metal because, as stocks continue moving higher, smart investors could seek hedges, of which bullion is one of the best.
“It is a great hedge for stocks. Gold has the lowest correlation to the S&P 500 of almost any asset class and can act as a haven if inflation reaccelerates or growth slows later this year,” added Bank of America.
Another catalyst for gold is that global central banks remain devoted buyers of the commodity. While that’s been true for a number of years, the catalyst is arguably underappreciated because, as Bank of America noted, many market observers rely on U.S. interest rates as the primary price determinant for gold. In what could be a positive for GDMN, the bank said that model is “broken.”
Source: https://www.etftrends.com/