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Gold Unmoved By Market Volatility, Ready For Rally You probably haven’t heard much about gold in the headlines this year. Overshadowed by volatile stock and bond markets, the yellow metal has slipped under the radar. Even during the market meltdown in February, when the S&P 500 dropped precipitously and Treasury bonds tumbled, gold barely budged. A measure of gold price volatility, the Cboe Gold ETF VIX Index—which measures implied volatility on options for the SPDR Gold Trust (GLD)—is trading at half its historical level. Cboe Gold ETF VIX Index Source: Bloomberg
Some might criticize gold for not reacting more to the swooning stock market, but that’s not necessarily the right way to judge the metal, according to Maxwell Gold, director of investment strategy at ETF Securities.
Still A Safe Haven In one sense, gold is doing what it’s supposed to do. Widely regarded as a safe haven, gold is counted on to provide stability during times of stress. By holding firm as other asset classes were walloped, gold successfully fulfilled that role. Regardless, ETF Securities’ Gold says that it’s not the short-term movements in gold that matter; the yellow metal really shines as a safe haven during prolonged market downturns.
Prices Holding Up The most recent drop in the S&P 500 never reached that 15% threshold—it neared a 12% decline before snapping back swiftly—which may explain why gold didn’t catch a bid. That said, as unreactive as gold has been recently, it’s actually doing pretty well in terms of performance, with prices last trading around $1,325/oz. Gold has risen for three-straight years, including an 8.6% gain in 2016, a 13.1% gain in 2017 and a 1.7% gain so far this year. Spot Gold Price That’s pretty impressive considering all the head winds gold has had to deal with, from competition from other asset classes (including stocks and bitcoin) to rising interest rates to slumping investment demand. Investors have pulled $1.2 billion from global gold ETFs so far in 2018, according to the World Gold Council. Catalysts For A Rally Joe Foster, portfolio manager and gold strategist at VanEck, doesn’t see that as a concern.
That catalyst could come later in the year or in 2019.
Maxwell Gold sees a similar bullish move for gold later this year, but thinks prices will head lower to the $1,250 to $1,300 range first.
Follow Sumit Roy on Twitter @sumitroy2
Sumit Roy is a staff writer for ETF.com and ETF Report.
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