Gold ETFs are steady, preparing for a drive to the upside amid increased expectations of further U.S. interest rate cuts. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
Gold is targeting a third straight month of gains and sitting near six-year highs. Gold bulls are expecting good news to come their way in the form of a U.S. interest rate cut. October gold futures were last up $0.40 an ounce at 1,435.50.
The market expectation of future rate cuts by the Federal saw gold surpass its 5-year high after the central bank said it “will act as appropriate to sustain” economic expansion. Gold prices took a breather by falling below the $1,400 price level, but it could be the precursor to more gains ahead.
According to Kitco.com, “Technically, the gold bulls still have the solid overall near-term technical advantage. A two-month-old uptrend is in place on the daily bar chart. Bulls’ next upside price objective is to produce a close in October futures above solid resistance at the July high of $1,460.30. Bears’ next near-term downside price breakout objective is pushing August futures prices below solid technical support at $1,400.00. First resistance is seen at last week’s high of $1,440.60 and then at $1,447.00. First support is seen at Tuesday’s low of $1,429.00 and then at $1,425.00. Wyckoff’s Market Rating: 7.0.”
“The argument that investing capital in gold-backed ETFs involves significant opportunity cost loses validity as the total amount of bonds bearing negative yields has continued to grow,” according to State Street.
For those investors seeking a way to play the market using ETFs, the SPDR Gold MiniShares (GLDM ) and SPDR Gold Shares (GLD ), performed well in the second quarter and with the Federal Reserve poised to lower interest rates Wednesday, the stage is set for more upside for gold ETFs.
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