Now is the Time to buy SPDR Gold Trust as an Inflation Hedge

03/12/2018 5:00 am EST


John Persinos

Managing Editor, Personal Finance

SPDR Gold Trust (GLD) is an exchange-traded fund (ETF) that seeks to reflect the performance of the price of gold bullion.It is the most popular bullion ETF and the most liquid physically backed gold offering available, explains John Persinos, editor of Investing Daily's Personal Finance.

Launched in 2004, GLD was the first gold ETF in the U.S. The ETF is a logical inflation hedge now. Investors worry that economic growth will overheat. Unemployment is at 4.1%, a 17-year low. The job market is tight; wage growth is accelerating.

The $1.5 trillion tax cut kicks in during an expansion. The tax overhaul also boosts the federal deficit. Meanwhile, global growth is “synchronized,” which means all regions are firing on all cylinders.

This combined stimulus is a recipe for inflation. The Federal Reserve might raise rates more often than planned. At the end of its latest Federal Open Market Committee meeting in late January, the central bank flagged inflation as a threat.

At the same time, political risk is creeping back into the equation and geopolitical risk is growing as well. These conditions are manna for the yellow metal, the classic hedge against inflation and crises.

The investment rule of thumb is for an allocation of 5%–10% in either gold mining stocks, ETFs or the physical bullion itself. We prefer the ease and safety of ETFs. Gold ETFs move directly in tandem with gold prices. We expect gold prices to spike in 2018.

But here’s what many analysts are missing: Gold prices are also influenced by cultural and holiday celebrations in China and India, such as the Chinese New Year and Diwali. Each country buys more gold than the U.S., Europe, and the Middle East combined.

Individual Chinese are turning to gold not just for ornamental purposes but also as a storehouse of value in uncertain times. Chinese demand should prove a tailwind for gold prices in 2018.

Gold prices are on an upward trajectory that appears to enjoy sustainable momentum. Forecasts vary, but bullish sentiment predominates. The time to buy GLD is now, before panic buying bids up the price of gold investments.

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