The ETF IAU Gold trust allows investors to access a daily exposure to fluctuations in the price of Gold bullion, and represents an easy way for investing into physical Gold through a financial instrument both liquid and whose cost of access is limited (0.25% in the lower range of ETFs expenses).
Gold is usually not correlated to equity and bond markets and also serves historically as a safe haven, particularly at times of high inflation and through financial crisis, as we have seen from the recent period (2007-2012) marked by the subprime crisis, followed by the crisis on the European peripheral debts. Furthermore, gold is sensitive to other factors such as central bank purchases which is currently the case with significant inflows of foreign central banks in emerging countries such as China and India.
The momentum in US interest rates is also very important for gold prices because this precious metals do not grant dividend or interests, therefore the FED hike is a central issue for the gold price : if the FED does not accelerate the rate hike pace in the coming months, this should be beneficial for the gold price. However in case of inflationary spiral as in the 70's, the very strong rates is good news for gold as a safe haven.
Gold may also be seen as a diversification to an equity portfolio, because the change of the metal is not correlated to economic cycles and may follow a very different path opposed to the tendency of stock indexes, but not necessarily. Finally gold is denominated in US $, which may have a double effect because the dollar itself is seen as a safe haven and the dollar tends to be positive for commodity prices.
Since the election of Donald Trump, Gold corrected sharply because of higher long rates which makes it less attractive, while inflation expectations rise without worrying. Talk of embargo/quotas on india imports also weighted on prices at the end of 2016, while India is the biggest gold consumer especially for jewellery. But for the time being measured actions from the FED on rates and potential threats of trade war between China and the US (even with Germany and Japan), the consequences still underestimated Brexit debt as well as the very important largest economies – the United States, China, Japan, Europe) remain encouraging for gold prices.
In the event of a slippage in inflation or conversely if a new crisis were to emerge on the horizon, gold would become again the natural safe haven for investors. While the dollar is currently in the upper zone and long rates has entered an upward trend, gold is performing relatively well (+ 5.7% in 2017 after + 8.6% in 2016). More recently, the theme of reflation of the economy and some signals of policy change from the ECB weighed on gold prices. However, the rate hike process should remain very gradual, as confirmed by the FED.
