Investors take exposure in gold by either buying the metal’s Exchange Traded Funds (ETFs), or accumulate position in gold related stocks. But buying Physical gold has been the popular choice of investing in gold. Investors usually consider adding Gold to their positions during the times of challenging market conditions in order to hedge their positions against the stock volatility or fluctuations. However, since the great recession, investors have been hedging as well as diversifying their portfolio by adding gold in their portfolio to withstand the short term volatility in the stock and currency markets.
Accordingly, Gold has delivered outstanding returns for investors during the great recession period as it was a safe haven asset for all given the huge fall in the stock markets. For instance, the SPDR Gold Trust (ETF)(NYSEARCA:GLD) surged over 31.26% during 2008-2009 year timeframe (from January 4
th, 2008 to December 18
th 2009) while Dow jones fell by 22.7% and S&P/ASX 200 plunged over 26.6% during the same period. But, the Gold prices have corrected since the last five years with the recovery in stock markets and strengthening of the US dollar. For instance, The SPDR Gold Trust (ETF)(NYSEARCA:GLD) fell over 13.59% in the last five years (as of March 11
th, 2016) as compared to the Dow jones rise by over 42.89% during the same period. Gold prices usually fall with the raising dollar. Therefore, around the same period, the US dollar Index was reported to be improved by over 27.37%.
Drop in Gold related ETFs over past two years (Source: Thomson Reuters)
Meanwhile, the gold prices are back on their growth track during this year to date and started delivering solid returns following the recent challenging market conditions across the globe and the turmoil in the stock markets. The Bank of Japan’s interest rate cut to less than zero, a possible rate hike by US fed, declining commodity and oil prices coupled with the Chinese devaluing its currency have led to a huge correction in the stock markets. Consequently, the SPDR Gold Trust (ETF)(NYSEARCA:GLD) surged over 17.69% (as of March 11
th, 2016) as compared to the Dow jones decline by 1.22% and S&P/ASX 200 fall of over 2.45% (as of March 11
th, 2016). Gold prices have got back to almost their similar levels they touched last year as investors are still not certain over a possible interest rate hike. In addition, the recent U.S employment data indicated a positive performance as the country’s jobs increased despite the low wages. However, even though this US employment data does not offer any clarity over a potential risk of an interest rate hike by the Federal Reserve in the medium term, investors are still parking their investments in this safe haven asset, subsequently leading to the rise in the gold prices. Gold Futures for April 2016 delivery have been reported to close at over $1,259.90 on March 4
th, 2016, and rose over 11.8% since February 2
nd, 2016 (as of March 4
th, 2016). Moreover, the dollar pressure might also contribute to the gold’s positive momentum in the coming months as this metal has been an attractive alternate investment. The US Dollar Index slightly corrected in the last few days, which contributed to the positive momentum in the gold. As a result, the SPDR Gold Trust (ETF) (NYSEARCA: GLD) surged over 15.81% in the last three months (as of March 11
th, 2016).
In a nutshell, investors could hedge or diversify their current portfolio by taking positions in the gold on the back of the current volatile market conditions. The ongoing slowdown in China, coupled with a potential expectation of further volatile conditions in the US and Europe markets, and weakening greenback against the other major currencies might also contribute to the gold’s performance in the coming months.
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