Gold ETFs Shine Amid Market Turmoil

February 09, 2016

Another year, another decline in prices. That's been the story for commodities so far in 2016. But amidst carnage, one commodity is slowly creeping higher, just when everyone had left it for dead.

That commodity is none other than gold. The safe-haven yellow metal is back on the rise after three-straight down years. So far in 2016, it's up a solid 13%, last trading just below the $1,200/oz mark.

1-Year Spot Gold Price

Like most commodities, gold fell continuously throughout 2015 on the back of concerns related to demand from China and a surging dollar. Prices briefly fell to a six-year low around $1,046 late last year before the latest turnaround began to take hold.

Gold A ‘High-Yield’ Asset

While other commodities like oil or copper have been hurt by the latest stresses affecting financial markets, gold has benefited.

This year's plunging stock markets bolstered the appeal of the safe-haven metal. But gold also got a boost from a surprising decline in the U.S. dollar, particularly on Wednesday of last week, when the greenback had its worst daily decline in seven years.

Growing expectations that the Fed may throw in the towel on its four-rate-hike plan for 2016 knocked the dollar from its highs. Now the buck―whose surge was blamed for gold's weakness during the last few years―may be vulnerable to further selling as the crowded trade begins to unwind, say some analysts.

US Dollar Index Retreats From Its Highs

Meanwhile, sinking yields on government bonds are another factor in gold's ascent, especially now that the Bank of Japan has joined the European Central Bank and others in experimenting with negative interest rates on government bonds.

Even though it yields zero, "All of a sudden, gold is a high-yield asset because there's [so many] bonds around the world yielding negative," said John Ciampaglia, executive vice president at Sprott Inc.

About 40% of European sovereign bonds have negative yields, according to Deutsche Bank, a number that could rise if the European Central Bank expands its quantitative easing program as expected in March.

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