The price of the yellow commodity has been ascending as the Fed is set to cut interest rates, followed by rising geopolitical tensions and increasing purchases of the precious metal by central banks.
Rate Cut Likelihood Grows
With a 100% chance of a rate cut in September 2024, investing in gold has become more attractive. There’s a likelihood of 70.5% that the Fed might lower the rate to 5-5.25% and a 29.5% likelihood of the rates falling to 4.75-5% in September, according to the CME FedWatch Tool.
With a probability of 43.4% of the interest rates falling to 4.50-4.75% and a 42.4% probability of interest rates falling to 4.25-4.5% in December, the long-term treasury rates may start declining, making gold more appealing to investors compared to bonds.
Gold to Rise on Greenback Slide?
Gold prices are inversely related to the value of the U.S. dollar as gold is priced in dollars. A weaker U.S. dollar generally leads to higher demand for gold, pushing its price upward as it becomes more affordable for buyers holding other currencies.
If the Fed goes ahead with a rate cut, the greenback may lose its strength. The US Dollar Index (DXY) has fallen by about 3% since late June (as of Aug 15). As the U.S. dollar weakens toward the end of 2024 and into 2025, the price of the yellow commodity may surge further.
Rising Central Bank Interest in the Precious Metal
Central banks in advanced economies are increasing their gold reserves, mirroring the stance of emerging economies in purchasing the metal.
Central banks globally added nearly 500 tons of gold to their reserves in the first half of 2024, surpassing the previous year's record. This surge reflects efforts by some nations to diversify away from the U.S. dollar, combat inflation and stabilize their economies (Read: 10 Reasons to Buy Gold Stocks in 2024).
ETFs in Focus
Across extended investment periods, gold preserves its purchasing power, outpacing inflation and contributing significant diversification to an investment portfolio due to its historical tendency to have a negative correlation with other asset classes.
Maintaining gold exposure in your portfolio is advantageous, especially now. With increasing uncertainties surrounding U.S. politics and rising geopolitical tensions, gold offers a valuable hedge in these uncertain times.
Additionally, with the Fed set to cut interest rates this year, the possibility of a weakening greenback and central banks ramping up their gold purchases could potentially drive investments into physically backed gold ETFs.
Below, we highlight a few funds.
SPDR Gold Shares (GLD) has gained 4.06% over the past month and 22.64% over the past year.
iShares Gold Trust (IAU) has gained 4.07% over the past month and 22.82% over the past year.
SPDR Gold MiniShares Trust (GLDM) has gained 4.08% over the past month and 235 over the past year.
abrdn Physical Gold Shares ETF (SGOL) has gained 4.08% over the past month and 22.91% over the past year.
Goldman Sachs Physical Gold ETF (AAAU) has gained 4.08% over the past month and 22.89% over the past year.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
Goldman Sachs Physical Gold ETF (AAAU): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
