Gold Mining ETF Investing Guide

Gold peaked to a six-week high last week, triggered by disappointing U.S. jobs data. Further, terrorist attacks in London ahead of the U.K election have given a boost to gold prices. The most anticipated Bureau of Labor Statistics (BLS) monthly non-farm payroll numbers revealed that 138000 new jobs were created in May 2017, much below economists’ expectations of 184,000. The unemployment rate declined to 4.3% — the lowest in 16 years. Figures for March and April were also revised to show that 66,000 less jobs were created than expected, indicating that the labor market may be losing momentum. Average hourly earnings grew 2.5% year over year, which was another disappointing figure.(Read: Forget Gold, Palladium ETF is Shining the Brightest)

Gold investors were jittery before the much-awaited Fed meeting on Jun 14, in anticipation of an interest rate hike for the second time this year. The key interest rate was hiked to 1.00-1.25% from 0.75-1.0% set in Mar 2017. Policymakers reiterated their projections of one more rate hike this year, followed by three hikes each in 2018 and 2019.This move, followed by encouraging data on U.S. initial jobless claims, prompted a rebound in dollar and pushed gold prices to 3-week lows.Nevertheless, gold is up 9% so far this year.

The U.S. dollar has a close inverse relationship to commodity prices and gold. Considering that gold is not yield-producing and investors have to rely on price appreciation for returns, the yellow metal normally has a strong inverse correlation to inflation-adjusted interest rates. Gold traditionally is also viewed as a hedge against inflation. (Read: Gold ETFs Tussle Between Politics and Fed)

The uncertain political climate both in the UK and the United States is negatively impacting currencies and concerns over the fragility of both the economy and geopolitical tensions will keep the safe haven demand for gold up.

Macroeconomic trends in Asia will support economic growth in the coming years. Given that gold demand is generally closely correlated to increasing wealth in the continent, the commodity should be on fire. Asia mostly sees retail demand for the metal due to festival and wedding related buying activities in countries like India and China. (Read: Hot Housing ETFs to Buy Now)

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