Gold has been subdued this year after a lackluster 2022. Higher rates and a strong U.S. dollar have faded the yellow metal’s allure. Gold bullion ETF SPDR Gold Trust GLD is up only 3.8% this year while it has added 6.8% past year.

Investors will now be curious to know what lies in store for gold ETF investing for the rest of 2023. Many are hopeful about a gold rally in the medium term. David Neuhauser, Founder of Livermore Partners sees 2024 a year when gold will break out and touch new highs and beyond, as quoted on CNBC.

Let’s delve a little deeper.

Will Fed Pause Rate Hikes?

The cooler-than-expected July inflation data indicates that inflation has significantly reduced from its 40-year peak in mid-2022. However, it remains considerably above the Federal Reserve’s desired 2% level, making interest rate cuts unlikely in the near future.

But then, after raising the benchmark interest rates 11 times since March 2022, the U.S. central bank is expected to pause in September, per market experts, as quoted on CNBC. This is especially true given the regional banking crisis is still in the U.S. economy.

Credit card debt surpassed $1 trillion for the first time this year indicating that consumers are becoming cash-starved. Market participants probably started believing that the Fed won’t hike steeply going forward to arrest potential economic slowdown. This would be a plus for gold investing.

Gold prices tend to move inversely to interest rates. When interest rates decline, non-interest-bearing gold becomes more attractive as it competes more favorably with interest-bearing investments like bonds.

Not on this, analysts like Bart Melek, TD Securities’ managing director and global head of commodity strategy, believe that the Fed may pivot away from its current restrictive stance before reaching its 2% inflation target, as quoted on CNBC. This potential policy shift could lead to a decline in interest rates, making non-interest-bearing assets like gold more attractive to investors.

Looming Slowdown Fears

Chances of an economic slowdown have heightened concerns about the stability of traditional investments. Economic uncertainty often drives investors to seek refuge in safe haven assets like gold. Gold’s historical performance during economic downturns and stagflation scenarios underscores its potential to thrive when traditional investments falter.

Strong Consumer Demand and Central Bank Interest

Physical demand for gold remains robust, fueled by central bank purchases and consumer demand. Central banks from emerging markets continue to diversify their reserves by acquiring gold, reflecting their confidence in the metal’s enduring value. Additionally, improving economic conditions in key consuming countries like China and India have driven a rebound in gold jewelry demand.

U.S. Dollar to Stay Subdued?

Invesco DB US Dollar Index Bullish Fund UUP is up only 1.4% this year on a less-hawkish Fed though the greenback recorded a stellar performance in 2022. If the Fed continued to soften its stance and other economies like Euro zone and Japan see a surge in bond yields, the greenback will likely remain muted.

The U.S. currency’s this status will favor the gold investing. Further, BRICS countries, namely Brazil, Russia, India, China and South Africa, are reportedly looking at turning away from the U.S. dollar to a new currency backed by gold, quoted on the CNBC article.

ETFs in Focus

Against this backdrop, investors can keep track of regular gold ETFs like SPDR Gold Shares (GLD), iShares Gold Trust IAU, Aberdeen Standard Physical Swiss Gold Shares ETF SGOL and SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Shares BAR.

Bottom Line

The gold’s rally from here depends on the Fed’s behavior and progression of global inflation. Having said this, we would like to note that the current scenario is not in favor of gold investing fully as the greenback is still in solid shape. Gold investors should closely watch the economic and market events before taking any decision.
SPDR Gold Shares (GLD): ETF Research Reports

iShares Gold Trust (IAU): ETF Research Reports

abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports

Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports

GraniteShares Gold Trust (BAR): ETF Research Reports

SPDR Gold MiniShares Trust (GLDM): ETF Research Reports

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Zacks Investment Research

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