With the Fed delivering its first rate cut of 2025 and hinting at two more this year, gold’s rally looks set to extend further. Additionally, concerns about inflation and sustained central bank buying further support the rally in gold price.
Gold preserves its purchasing power across extended investment periods, outpacing inflation and diversifying an investment portfolio due to its tendency to have a negative correlation with other asset classes.
Strong fundamental indicators could extend gold’s gains into late 2025 and 2026, boosting the case for increased portfolio allocation. According to TradingView, gold price is up about 10% over the past month and about 20.5% over the past six months.
Gold’s record rally this year has been fueled by dollar weakness and safe-haven demand amid geopolitical and trade tensions. With the greenback expected to stay under pressure and global risks set to persist, gold prices are likely to climb further into next year.
Per Ray Dalio, as quoted on Reuters, amid market instability and rising debt, gold stands as a safeguard. He also recommends that to have a well-diversified portfolio, investors should allocate 10-15% to gold.
Rate Cuts, Weaker Dollar, Stronger Gold Case
The greenback's value tends to move inversely with interest rate adjustments by the Fed. Interest rate cuts by the Fed make the dollar less attractive to foreign investors, as this weakens the U.S. dollar. Per TradingView, the U.S. Dollar Index (DXY) has fallen 0.61% over the past five days and 10.69% year to date. The index has recorded an all-time decline of 19.16%.
A weaker U.S. dollar generally leads to higher demand for gold, pushing its price upward as it becomes more affordable for buyers holding other currencies.
According to the CME FedWatch tool, markets are anticipating an 89.8% likelihood of interest rates falling to 3.75-4% in October and an 81.8% likelihood of interest rates falling to 3.5-3.75% in December.
Tariff Uncertainty Increasing Safe-Haven Demand
A safe-haven investment during a challenging period, gold remains a secure choice amid economic and geopolitical instability. The only word that can be used to describe the geopolitical landscape in 2025 is “complicated.” Amid the current economic and geopolitical climate, investing in the yellow metal is an attractive investment strategy.
Legal uncertainty surrounding the Trump administration’s tariffs adds to the increasingly volatile macroeconomic environment, hinting that gold’s record-breaking rally may continue.
Wall Street is likely to face added economic uncertainty, with the Supreme Court set to decide on the legality of tariffs introduced by the U.S. President under the International Emergency Economic Powers Act (IEEPA), which could also heighten concerns about the economy’s fiscal health (Read: Tariff Uncertainty Still Weighs on Markets: Volatility ETFs to Play).
ETFs to Consider
Investors can enhance their exposure to the precious metal to potentially boost portfolio gains and better prepare for an uncertain market environment going forward. Given the increasing macroeconomic uncertainty and geopolitical volatility, gold remains an essential hedge for all investors, regardless of their investment theme.
Investors should not be discouraged by any likely decline in gold prices. Rather, they should adopt a "buy-the-dip" strategy.
Investors can consider SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM, abrdn Physical Gold Shares ETF SGOL and iShares Gold Trust Micro IAUM to increase their exposure to the yellow metal.
With a one-month average trading volume of 11.19 million shares, GLD is the most liquid option, ideal for active trading strategies. However, implementing an active strategy in the current landscape may not be the most effective approach. Adopting a long-term passive investment strategy becomes the go-to approach for investors to weather short-term market storms.
GLD has also gathered an asset base of $115.22 billion, the largest among the other options. Performance across all funds has been mostly consistent. Regarding annual fees, GLDM and IAUM are the cheapest options, charging 0.10% and 0.09% respectively, which makes them more suitable for long-term investing.
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SPDR Gold Shares (GLD): ETF Research Reports iShares Gold Trust (IAU): ETF Research Reports abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports SPDR Gold MiniShares Trust (GLDM): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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