Gold prices tumbled last week, belying the asset’s historical reputation as a safe-haven destination during times of geopolitical strife. As just one example, the largest ETF backed by physical holdings of the commodity posted a weekly slide of 10.51%. That’s correction territory in just five trading days. Yes, that’s a frustrating state of affairs, particularly when considering gold is often durable amid heightened geopolitical tensions. However, investors shouldn’t take their eyes off ETFs such as the NEOS Gold High Income ETF (IAUI ). Actually, the time may be right for market participants that missed out on bullion’s previous surge to consider getting in the game.
IAUI debuted last June, making it something of a fresh face among gold ETFs. The fund’s combination of high income and some leverage to gold upside could make it a compelling consideration for income and commodities investors now that the yellow metal has pulled back in material fashion.
Gold Down, But Not Out
Investors are right to be apprehensive about gold following last week’s retrenchment, but some experts believe that much of the ex-energy weakness in the commodities complex is solely on the back of the conflict in Iran. Those market observers argue that if there is quick resolution, or even if the Strait of Hormuz is opened over the near-term, gold could rebound.
“Before the Iran war, central banks were accumulating and holding. This, we expect, will resume as soon as there are legitimate signs of de-escalation. This will, again, remove supply from the market and strengthen long-term support,” noted deVere Group CEO Nigel Green.
Translation: There is a fundamental case for gold and ETFs such as IAUI and that case has been paused, not eliminated, due to conflict in the Middle East. That’s good news for IAUI, which serves up a tempting distribution rate of 12.22%.
Adding to that fundamental case are expectations of robust gold buying by central banks and institutional investors. As Green pointed out, some forecasts indicate those purchases could run as high as 585 tons per quarter this year. Bottom line: Gold is hurting due to short-term noise, not fundamental issues.
“Short-term weakness linked to geopolitical tension and inflation expectations doesn’t change the trajectory. It reflects positioning, not direction,” concluded the deVere CEO. “As tensions linked to Iran begin to ease and markets stabilise, capital will rotate back into gold rapidly. The scale of central bank buying means the upside move could be sharp.”
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