Gold Breaks Through $2,000 an Ounce: Will It Continue its Upward Climb?
After years of flirting with the mark, gold has finally broken through $2,000 an ounce and is showing no signs of slowing down. The price of gold in U.S dollar terms has been on a steady rise since last October, increasing by more than 25% in just a few months. This recent breakout has left many investors and analysts wondering if this is the start of something big for the precious metal.
Gold has long been a favorite among investors who believe it will continue to appreciate in value as inflation rises and the U.S dollar depreciates. With a closing price last Friday above $2,300 an ounce, gold fans are feeling vindicated once again. And with good reason – inflation may be re-accelerating, the U.S dollar is backing a massive $34 trillion pile of debt, and market technicians can make a strong case for much higher prices now that the long-term "breakout" has finally occurred.
Gold ETFs: A Rollercoaster Ride
Parabolic moves like the one gold just had might be a double-edged sword. Holders of the two dominant asset-gatherers in the gold commodity space, the $61 billion SPDR Gold Trust (GLD) and the $28 billion iShares Gold Trust (IAU), have seen those ETFs move like a roller coaster in recent years. They've doubled since early 2016, but with that came the risk of significant losses if investors had gotten out too soon.
Financial advisors have watched clients get excited about big moves in tech stocks and small caps, a giant bond market rebound, and bitcoin. And that's just in recent memory. Yet all of those moves have, or are hinting at, what I refer to as the "Empire State Building" chart formation – a sudden spike higher, followed by a reversal in large part or in total.
Picture the top of New York's Empire State Building, which narrows at the top and ends with a long needle at the peak. But that needle has two sides. Will the gold chart resemble that in a few months? It's impossible to predict with certainty, but one thing is clear – the recent breakout has got everyone talking.
Gold Mining Stock ETFs: A Different Story
Gold is a most intriguing ETF asset class since it can be owned via funds that track the price of gold, the commodity. However, gold mining stock ETFs allow advisors to allocate to a version of the gold trade that has revenue, earnings, people, and operations behind it – all centered around the business of mining that yellow metal.
Funds like the $14.2 billion Van Eck Gold Miners ETF (GDX) and the $114 million Sprott Gold Miners ETF (SGDM) are among the 14 gold mining ETFs tracked by the etf.com database. And unlike gold itself, they are still quite a distance from making all-time highs. They are part of the basic material sector, which is a small portion of the S&P 500 that hasn't kept up with market leaders in tech and elsewhere.
This could set up an opportunity for advisors to increase allocations to a relatively out-of-favor industry that can potentially follow its underlying commodity price higher. It's not just about gold prices; it's also about the companies behind them, their financials, and their growth prospects.
Conclusion
The recent breakout of gold in U.S dollar terms has left investors and analysts wondering if this is the start of something big for the precious metal. With inflation on the rise, a depreciating U.S dollar, and market technicians making a strong case for higher prices, it's clear that gold is once again a conversation piece.
Whether this will be a golden moment for ETF investors and advisors or just another "fake out breakout" remains to be seen. But one thing is certain – gold has broken through $2,000 an ounce, and its price is showing no signs of slowing down anytime soon.