Gold prices have been riding a six-week winning streak in terms of gains, but key economic data points could potentially stifle the rally. Nonetheless, gold hasn’t seen this type of winning streak since the summer of 2020, a few months after the COVID-19 pandemic upended the broad stock market.
The U.S. Federal Reserve meeting will be closely watched as the capital markets ponder over whether the central bank will scale back its rate hikes. The Fed could maintain its hawkishness in order to keep inflation in check, which could push the dollar higher and, consequently, gold lower — that, in effect, could spur some selling for bullish gold investors who’ve been reaping the rewards of the most recent rally.
“With big data points coming in, the market will back off, and you will take profits off that table,” said Walsh Trading co-director Sean Lusk in a Kitco News report.
In a three-month time frame, gold has risen close to 17% while inversely, the ICE U.S. Dollar Index (DXY) has fallen about half that amount. Heading into 2023, the expectation was that the Fed would eventually take its proverbial foot off the gas with respect to rate hikes, but that may not be the case just yet.
“I don’t think the Fed will be less aggressive as they are looking at the long term,” Walsh added, noting that China’s re-opening of its economy after COVID-19 lockdowns could keep the global economy growing at a faster pace than anticipated. “With China opening up, there will be more demand. The Fed could keep its foot on the pedal here.”
3 Options for Gold Exposure
On the flip side, growth could suffer if aggressive rate hikes slow down the economy. A potential recession could spur a safe haven flight into gold, giving investors options for gold exposure.
Investors who want gold exposure similar to holding physical gold can opt for an easier strategy via the Sprott Physical Gold Trust PHYS. PHYS provides an enhanced physical bullion structure, offering the ease of purchase and sale that comes with being traded on an exchange.
An alternate way to get gold exposure is via miners. As demand for gold increases, the potential for ancillary services that support gold (i.e. gold mining) also increases, opening opportunities for the Sprott Gold Miners ETF (SGDM ).
SGDM tracks the Solactive Gold Miners Custom Factors Index. It essentially provides exposure to value using a transparent, rules-based methodology that is designed to emphasize larger-sized gold companies with the highest revenue growth, free cash flow yield, and the lowest long-term debt to equity.
Lastly, investors who want gold exposure with an environmental, social, and governance (ESG) component can consider the Sprott ESG Gold ETF (SESG ). The fund directly sources from select gold producers that Sprott believe are leaders in ESG mining and sustainability.
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