Gold ETFs See Fresh Demand

November 2nd, 2016 by

Safe havens have again gotten a great deal of attention on the financial markets as we approach the bitter end of the 2016 presidential race.

The fact that the race for the White House has suddenly tightened is breeding uncertainty and a potential cause for panic on top of other looming concerns about the global economy. With less than a week to go before Election Day, this has quickly driven safe haven demand from investors back to frenetic levels not seen in months.

Gold ETFs

This general rush for safe havens—gold, bonds, the dollar, the yen, the Swiss franc—has benefited gold exchange-traded funds. For the first time in over four weeks, the largest gold ETF, the SPDR Gold Trust (GLD), broke above its 50-day moving average (50-DMA). This is often used a technical indicator of whether or not the price of a security or other asset is in a trend of rising or falling. GLD recently touched above $124, the highest that shares of the fund have traded since October 3rd. Not surprisingly, the following trading day (October 4th) was the last time that spot gold had moved above the key $1,300 per ounce mark before Wednesday. Mirroring the gold price, GLD is up about 23% year-to-date.

The major gold mining ETFs, though less enthusiastically, charted a similar path. The Market Vectors Gold Miners ETF (GDX) likewise traded at levels on Wednesday not seen since October 3rd.

Speaking about Wednesday’s upward movement in the gold price, Investor’s Business Daily reports,

“The precious metal built on Tuesday’s strong gains, which some market analysts linked to a weaker dollar as well as jitters about a potential win for Donald Trump and a potential Brexit-like shock to the stock markets. Gold acts as a safe-haven asset in times of uncertainty.”

Election Jitters, Etc.

Speaking of possible negative reaction in the financial markets to a Trump presidency, the analysts at HSBC are warning that investors ought to buy gold no matter who wins the election. Their reasoning is based on the overlapping policies on trade that the two candidates have espoused on the campaign trail. Both Trump and Clinton have called for more trade protectionism. If the incoming president axes trade deals that are expected to boost global commerce, this scenario is supportive of higher gold prices. Moreover, both candidates have proposed huge government spending programs, which would also be bullish for gold.

The safe haven case for gold has been materializing all around us: crude oil has fallen 10% in two weeks; Wall St has sunk to a four-month low; and volatility has jumped to a two-month high.

Yet, nobody is talking about the elephant in the room: mounting debt. As debt levels rise all over the globe amid ultra-low interest rates, there could be an enormous shock to the financial system when interest rates rise (and, therefore, interest payments to service the trillions in debt also become steeper).

For both the immediate uncertainty of the markets and the long-term stability of the economy, gold is a crucial safe haven from these potential powder kegs.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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