Is this a good time to invest in gold Exchange Traded Funds? February 18, 2022

Let us look at the current global economic and political landscape that may have bearings on the future price trajectory of gold.

We have witnessed the stock market exhibiting heightened volatility with the US inflation hitting a 40-year high of 7.5% in January 2022 compared to a year earlier; this has inevitably raised the expectations of the FED needing to adopt a more hawkish view to raise rates in a bid to stem inflation.

The Fed typically responds to high inflation by making borrowing more expensive, which slows spending and the pace of price increase.The S&P 500 index ended January 2022 down 5.3 percent, its worst monthly performance since March 2020, which brought stomach-churning drops in the early days of the pandemic.¹

According to a report on 15 February 2022, James Bullard, president of the Federal Reserve Bank of St. Louis, reiterated his call for the Fed to take the aggressive step of raising its benchmark short-term rate by a full percentage point by July 1.²

Esther George, president of the Kansas City Fed meanwhile expressed support for a more “gradual” approach³ while Mary Daly of the San Francisco Fed declined to commit herself to more than a modest rate hike in March.⁴

On the political front, the possibility of Russia invading Ukraine has led to commodities like oil and gold rallying.

According to news reports, Russia has amassed well over 100,000 troops near its own border with Ukraine and in neighbouring Belarus, leaving the country surrounded on three sides.⁶

This has drawn warnings from the White House that Russian President Vladimir Putin could order an attack “any time”.

Oil hit a 7-year high on 15 February, while spot gold was 0.4% higher at $1,866.90 per ounce by 01:44 p.m. ET (1844 GMT), after hitting its highest level since Nov. 16 earlier in the session. U.S. gold futures settled up 1.5% at $1,869.40.⁷

With oil heading towards $100/barrel⁸, – inflation is expected to remain elevated. This is because energy comprises about one-third of the Consumer Price Index, and so when crude oil price rises, it impacts inflation.⁹

Gold being a traditional inflation hedge, it follows that as higher oil prices lead to increased inflation, the gold price goes up, as more investors buy gold to diversify out of inflation-losing assets like bonds and cash.

Gold investors typically say the yellow metal hedges against inflation; it’s an uncorrelated asset that doesn’t move with the stock market and it can grow in value when national or even global uncertainty is high.¹⁰

These features help build the case, which you can leverage via gold exchange-traded funds ETFs.

So, given the current economic and political climate and that parts of the world are still dealing with the COVID-19 crisis, allocating some portion of your investment pie to the yellow metal is probably a good idea.¹¹

For gold ETF investment options check out the ETF screener on the POEMS website.

Latest promotion

To encourage investors to start investing in bite-size amounts while harnessing the beauty of DCA, the minimum commission of all SGX-listed ETFs will be removed.¹²

For example, if your current minimum commission rate on SGX market is $10 or 0.1%, whichever is higher, from 3 Feb 2022 till 30 Jun 2022, this minimum amount will be removed and the commission will only be at 0.1%. This allows investors to spread their purchases over a longer period without incurring additional costs.

If you have further enquiries, please contact your trading representative or make an appointment to visit the nearest Phillip Investor Centres.

Alternatively, you can email us at etf@phillip.com.sg or visit our ETF page.

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