Tom Wickenden, Betashares investment strategist, says gold continues to benefit from both structural and cyclical tailwinds supporting its upward trajectory.
“Most notably, a structural shift has emerged in recent years as central banks increasingly accumulate gold to diversify away from US dollar-denominated assets and reduce reliance on the US-centric financial system,” Wickenden told SMSF Adviser.
“This trend has provided a durable foundation for gold’s strength. In the current cycle, additional support comes from a weaker US dollar, elevated uncertainty around US fiscal and monetary policy, a rising budget deficit and growing concerns about the independence of the Federal Reserve. Together, these forces have created a favourable environment for gold, which may continue to grind higher beyond its recent records.”
Wickenden continued that so far this year, gold ETFs have received nearly $1 billion in net flows, and in nearly all months, net flows to gold ETFs have been over $100 million each month.
“With some of these forces, namely a widening US deficit, the selling of US-denominated assets, and US policy uncertainty, also threatening to further weaken the US dollar, currency hedging is an important consideration for Australian gold investors.”
“A gold ETF can assist SMSFs to negate the potential negative impact on returns from further depreciation in the US dollar.”
This month, gold surged to a fresh record high, moving above US$3,550, with a rise of over US$4,000 possible on several factors, including stagflation fears, lower US interest rates and rising levels of gold ETF buying.
According to Marc Jocum, Global X senior product and investment strategist, Australian investors are on track to invest more than $1 billion into gold ETFs this year, potentially approaching the record $1.3 billion allocated in 2020.
“With bond real yields easing and the US dollar softening, investors are turning to gold as both a hedge and a store of value as speculation grows of a US rate cut grows, with the market now pricing in a 90 per cent chance of a September rate cut with persistent geopolitical risks and strong safe-haven demand also supporting gold,” Jocum said.
“Importantly, gold is not just benefiting from safe-haven demand, but also from broad-based investment inflows as investors reallocate towards real assets, and they are increasingly using ETFs to gain exposure to gold.”
According to the World Gold Council, the first week of September saw the strongest weekly gold ETF inflows since mid-April amid investors’ rising bets on a US Federal Reserve cut this month.
“Some investors might turn to jewellery or coins/bars from the local mint, whereas ETFs provide a simple way to access commodities like gold and silver with daily liquidity and not having to hassle about storage/insurance.”
