In late June, gold began trading above $1,400 an ounce for the first time since 2013 on a number of factors. Chief among them were expectations of lower interest rates here in the U.S.
In the past, the gold price has thrived in an environment of low to negative real rates—which is what you get when you subtract inflation from the headline interest rate. When the yellow metal hit its all-time high of $1,900 an ounce in September 2011, the real rate had fallen below negative two percent.
With gold having already broken out of its five-year trading range, is the best still yet to come?
We believe it is. But we’re not alone. Read what some analysts and strategies have to say:
World Gold Council (WGC)
“The prospect of lower interest rates should support gold investment demand,” the World Gold Council (WGC) says in its mid-year outlook. “Our research indicates that the gold price was higher in the 12 months following the end of a tightening cycle. Moreover, historical gold returns are more than twice their long-term average during periods of negative real rates—like the one we are likely to see later this year.”
Canadian Imperial Bank of Commerce (CIBC)
“We continue to see no signs of rate hikes on the horizon over the next several years, and historically have seen gold continue on an upward trajectory beyond the last rate cut,” writes CIBC in a note dated July 14.
The bank points out that in two previous gold bull market cycles—in the 1970s and 2000s—negative real rates were the main contributing factor. “During the last two major periods when real rates stayed below the 2 percent level and actually ticked into negative territory, the gold price moved over 320 percent in the 1970s… and approximately 400 percent from 2004 to peak in 2011.”
“The Fed is getting ready to cut interest rates, which should set in motion a multi-year bear market in the dollar,” write analysts at Alpine Macro in a research note dated June 28. A weaker U.S. dollar is one of three “key ingredients” for a bull market, according to Alpine Macro, the other two being a more accommodative Fed and rising geopolitical risks. “The technical break above $1,400 an ounce is a positive sign,” the firm adds. “New all-time highs for gold should be seen in the coming years.”
How to Get Exposure
After reading the research, you may be interested in getting exposure to gold. We believe one of the best ways is with our U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU), which gives investors access to companies engaged in the production of precious metals through both active (mining or production) or passive (owning royalties or production streams) means. The ETF does not directly invest in gold. GOAU trades on the NYSE Arca and just celebrated its two year anniversary on June 27, 2019.
Learn more about the fund and how to gain exposure to gold and precious metal miners by clicking the button below.
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