The Federal Reserve signaled that rate hikes are forthcoming, which caused gold prices to tick higher following their latest monetary policy announcement. Bullish gold investors hope that this is a ripple that precedes a larger price rally.
For much of 2021, the Fed was set on keeping rates the same as it processed more incoming data after a year of uncertainty in 2020. Now that tangible economic healing is evident in the latest data, the rhetoric of the Fed became increasingly hawkish as the year wore on.
Finally, the central bank confirmed that it would eventually be tapering off its stimulus measures, including the purchase of bonds. With a tighter money policy on the horizon, investors should be expecting rate increases.
“Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the central bank said in its monetary policy statement.
The expectation of higher rates translating into a stronger dollar should have pushed gold prices lower, but they ticked higher following the statement. The precious metal has been somewhat stuck in a holding pattern as of late with a number of market analysts eyeing $1,800 as a price ceiling.
An ETF Opportunity Worth Mining
Not keen on traditional gold funds backed by the precious metal? Gold miners are another alternative via ETFs like the Sprott Gold Miners ETF (SGDM ).
Per SGDM’s fund description, the ETF seeks investment results that correspond generally to the performance of its underlying index, the Solactive Gold Miners Custom Factors Index. This index aims to track the performance of larger-sized gold companies whose stocks are listed on Canadian and major U.S. exchanges.
The index uses 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. The index is reconstituted on a quarterly basis to reflect the companies with the highest factor scores.
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