The Golden & Silver ETF Year

August 11, 2016

In the ETF world, there's been nothing better than gold this year, with gold ETFs seeing the largest inflows so far in 2016, as well as being the best performers.

The reversal of fortunes for the yellow metal has been surprising, and in turn has pulled with it the entire precious metal ETF complex.

At the beginning of the year, gold was wallowing at six-year lows. Prices had fallen for three-straight years, from an all-time high of $1,921 /oz. to around $1,050 in December. Many analysts and prognosticators were calling for prices to fall even further―to under $1,000, to $800 or even lower.

Fed Rate Hike Bad For Gold, Right?

There was no reason for gold to rally this year when the Fed had just hiked interest rates for the first time in a decade on Dec.16, with more rate increases seemingly on the horizon, the bears argued.

But they couldn't have been more wrong.

The worst start to a year ever for the U.S. stock market in January quickly dashed expectations for Fed rate hikes. Then another shocker came on Jan. 28, when the Bank of Japan cut interest rates into negative territory, jarring bond markets around the world.

The one-two punch of stock market volatility and sliding global interest rates pushed gold sharply higher, with the yellow metal touching $1,250 by February.

Largely fueled by the easy-money policies of the Bank of Japan and the European Central Bank, global interest rates continued their stunning collapse in the following months. Rates on sovereign bond after sovereign bond fell into negative territory, a puzzling and unprecedented phenomenon.

Negative Rates Rallied Gold

By the end of June, nearly $12 trillion worth of global bonds were trading with negative yields, according to Fitch.

U.S. yields―which were never at risk of falling into negative territory―were also pulled down by the vortex, hitting a record-low of 1.32% on the 10-year bond in early July. That's when gold hit its high for 2016 around $1,375―almost 30% higher than where it began the year.

YTD Gold Price Chart

 

 

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