Amid war in Iran, gold has betrayed its safe-haven status. The largest bullion-backed ETF is trading lower by nearly 8% over the past month.
Sure, some of that pullback is attributable to the fact that the commodity raced higher in a short timeframe. And yes, some traders likely got ahead of themselves buying on margin only to see those positions liquidated amid a furious decline.
Obviously, those factors aren’t positives for ETFs such as the WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE ), but gold weakness may be a buying opportunity for a simple reason. The fundamental case for owning the yellow metal hasn’t been damaged by the war in Iran or margin liquidations. If anything, it’s as strong as ever and that could signal opportunity with GDE.
Read more: If Value’s Back in Style, Consider This Value ETF
GDE Could Be Interesting Post-War Play
No one has a crystal ball so forecasting an end date for the war in Iran is a difficult task. What’s not hard, however, is assessing why the actively managed GDE may be a beneficiary of the conflict’s conclusion. The ETF provides exposure to gold futures as well as a basket of large-cap domestic stocks. These are two asset classes that have suffered due to the war.
As Emily Avioli, Vice President and Investment Strategist at Merrill Lynch, pointed out in the firm’s latest capital market outlook, gold has behaved like a risk asset over the past four weeks. Avioli also pointed out that gold’s fundamentals remain sturdy. Additionally, the commodity’s recent downside is a symptom of “positioning effects, shifting interest rate expectations, and dollar dynamics.”
In another potentially positive sign for ETFs such as GDE, the positive demand drivers that ignited this gold bull market are intact.
“Supported by elevated central bank purchases and renewed retail enthusiasm, gold prices have risen sharply since 2022, recently surpassing the $5,400/oz threshold in January,” observed Avioli. “Historically, after large rallies in any commodity price in a short window of time, that commodity usually has a consolidation period or digestion of the abnormally large gains. This has been playing out with the current pullback in gold prices.”
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