In This Article:
Gold has been on an unstoppable rally, buoyed by strong safe-haven demand amid rising trade tariffs and escalating geopolitical tensions. The bullion reached a record high four times in the last five days, breaching the 3,050 level. The Fed’s signal of potential rate cuts this year added further shine to the yellow metal, pushing gold ETFs higher (read: Gold ETFs at All-Time High as Bullion Surges Past $3000).
SPDR Gold Trust ETF GLD, the ultra-popular ETF linked to gold price, has gained 15.6%, while VanEck Gold Miners ETF GDX, which offers exposure to gold mining stocks, climbed 32.3% since the start of the year.
What’s Driving Gold Rally?
The most important factor driving the gold rally is the ongoing trade tariff disputes, which will drive inflation higher and threaten domestic economic growth. Gold is widely known as a safe-haven asset. It is often used to preserve wealth during financial and political uncertainty and usually does well when other asset classes struggle. Additionally, the inflationary pressure caused by new tariffs will benefit the precious metal's status as a hedge against rising prices.
Geopolitical tension also escalated this week as Russia-Ukraine ceasefire talks stalled and Israel intensified airstrikes, boosting safe-haven demand.
Additionally, rate cut hopes drove gold higher. The Fed, in its latest meeting, hinted at possible interest rate cuts by year-end. Lower interest rates will continue to support gold prices as these raise the yellow metal’s attractiveness compared with fixed-income assets such as bonds. Notably, gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity costs of holding non-yielding bullion.
Gold’s rally is also buoyed by central bank buying and a weaker dollar. Notably, the dollar index has slipped to a five-month low. Meanwhile, China extended its purchases for a fourth consecutive month in February. According to the latest report from the World Gold Council, global gold demand reached a record high in 2024, driven by sustained central bank buying and growth in investment demand. Central banks accumulated more than 1,000 tons of gold for the third consecutive year. Global investment demand increased 25% year over year.
ETFs in Focus
GLD: SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. GLD is an ultra-popular gold ETF with an AUM of $87.4 billion and a heavy volume of about 8 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
GDX: Market Vectors Gold Mining ETF is the most popular and actively traded gold miner ETF with AUM of $14.8 billion and an average daily volume of around 17 million shares. It follows the NYSE Arca Gold Miners Index, which measures the overall performance of companies involved in the gold mining industry. It holds 63 stocks in its basket. Canadian firms account for about 44.6% of the portfolio, while the United States (16.5%) and Australia (11.1%) round off the top three spots (read: Gold Mining ETFs Shine Amid Market Rout).
Market Vectors Gold Mining ETF charges 51 bps in annual fees.