Gold exchange traded funds have seen volatility pick up in the back half of 2011 due to speculation over more central bank easing, eurozone debt worries and margin hikes on futures contracts.
Yet the precious metal is above $1,700 an ounce and gold ETFs are up 20% this year to trounce stocks.
A desire for safe havens and a weak U.S. dollar helped fuel the record run-up in gold, which rose above $1,900 in September.
Currently, hoarding from central banks and monetary easing policies have helped bolster gold prices.
“There is a two-fold impact on gold from the joint policy response from central banks. First, a substantial increase in the demand for dollar swap facilities would mean further expansion of the Fed’s balance sheet, if lending is not sterilized, and would effectively be another form of easing,” UBS analyst Edel Tully said in a Financial Post article. “The downward pressure this puts on the dollar is clearly to gold’s benefit. Second, to the extent that the cheapening of dollar funding costs limits the possibility of a liquidity crunch, it is also beneficial for gold.”
Additionally, analysts expect gold’s appeal will continue to draw investments going into 2012 on a murky global outlook.
“Whether or not Europe and the United States find a way out of their debt mess, there is one thing for certain – investors would now be more convinced than ever that they need to have a larger portfolio in gold,” Zhang Bingnan, vice chairman of the China Gold Association, said in a Reuters report. “The paper currency, government bonds and equities are not solid investments that can stand the test of time. Gold is the only asset that will last.”
Gold ETFs include:
- SPDR Gold Shares (GLD): up 22.28% year-to-date
- iShares Gold Trust (IAU): up 22.45% year-to-date
- ETFS Physical Swiss Gold Shares (SGOL): up 22.31% year-to-date
- PowerShares DB Gold (DGL): up 21.45% year-to-date
- ETFS Physical Asian Gold Shares (AGOL): up 26.74% since January 14 inception
- UBS E-TRACS CMCI Gold TR ETN (UBG): up 22.43% year-to-date
SPDR Gold Shares
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Max Chen contributed to this article.
Disclosure: Tom Lydon’s clients own GLD.