ETFs
3 reasons why gold ETFs could go higher from here
Gold prices have surged in 2024, boosted by the potential for US monetary policy easing, a likely decline in the US dollar, rising geopolitical tensions and continued central bank buying. Gold bullion ETF SPDR Gold Trust GLD is up 12.3% this year and grew 17.74% last year. We believe the long-term outlook for gold prices is even bullish. Here’s why.
Declining production?
John Reade, chief market strategist at the World Gold Council, noted that while there was a notable 4% year-on-year increase in mining production during the first quarter of 2024, the broader trend indicates a plateau in production since around 2016 to 2018, with no significant growth observed thereafter, as cited on CNBC.
Mining production increased by only 0.5% year-on-year in 2023, gained 1.35% in 2022, increased by 2.7% in 2021, and recorded the first decline (in decline of 1%) in a decade in 2020. The head of WGC believes that the growth of gold over a decade history which started in 2008 shows a downward trend. New gold deposits are becoming rare.
Limited gold reserves
Around 187,000 tonnes of gold have been mined to date, with the majority coming from countries including China, South Africa and Australia. Estimated excavable gold reserves are approximately 57,000 tons, according to the United States Geological Survey.
Obtaining government permits for mining operations has become more difficult, with the process often time-consuming and subject to greater scrutiny. Additionally, many mining projects are planned in remote areas, requiring the construction of essential infrastructure such as roads, electricity and water networks. These requirements make the overall mining process more complex and time-consuming.
Will the Fed cut rates in September?
The Fed announced a rate hike this year. The odds of a September rate cut have increased following the release of the June 12 CPI report, but the decision depends on continued improvement in inflation data. There is currently a 55% chance of a 25 basis point rate cut in September (at the time of writing), up from 46.8% recorded on June 11, 2024, according to the CME FedWatch tool.
Investors should note that U.S. consumer inflation slowed to 3.3% in May 2024, a three-month low, and came in below forecasts of 3.4%. The underlying CPI marked the lowest rate since April 2021. Wholesale price increases also declined by 0.2% in May. This is the biggest drop in producer prices since October.
This indicates that inflation is slowing in the United States, which could prompt the Fed to cut rates soon. If the Fed eases policy, the greenback will likely lose strength and bond yields will fall. Both factors should work in favor of investing in gold.
The story continues
Focus on gold ETFs
SPDR Gold MiniShares Trust GLDM, iShares Gold Trust AIU, iShares Gold Trust Micro IAUM, GraniteShares Gold Trust (BAR) and Goldman Sachs Physical Gold ETF The AAAU has each gained 12% so far this year.
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SPDR Gold Stock (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
Goldman Sachs Physical Gold ETF (AAAU): ETF Research Reports
iShares Gold Trust Micro (IAUM): ETF Research Reports