Credit: Shutterstock photoFinally, Britain has cut all ties with the European Union (EU), deciding on a referendum on June 23. At the time of writing, 51.9% votes were in favor of the 'leave' camp while 'remain' got 48.1% support.
Extremely high chances are there that the next few days will be full of gyrations in the market, with the impact being felt in all asset classes including the currency, equity and bonds market. With fears taking over the market movement, the pound has already plunged to its 31-year low. While most of these impacts will be adverse in nature, a Brexit will be an all-clear signal for gold and the related ETFs, for obvious safety reasons.
Gold Glitters on Safe-Haven Status
Gold is often viewed as a safe-haven asset to protect against financial risks, and has performed well lately (despite not-so-upbeat global economic fundamentals) on heightened market volatility. If Britain parts with the EU, gold stands to gain on a rockyglobal market(read: Safe Haven ETFs Surge on Brexit Fears ).
The gold bullion ETF SPDR Gold Shares GLD has added over 18% so far this year (as of June 23, 2016). On June 23, the fund lost just 0.6%, but started to tack on gains after hours as soon as Brexit fears returned to the market. The fund has returned about 4.9% pre market session on June 24 reacting to the Britain-EU split (read: Gold ETFs to Continue Their Bull Run: Here's Why? ).
Is it a Better Safe Haven than Others?
Apart from gold, there are three others safe haven assets investors normally flock to. One is Yen, which is a surging currency now but can lose its wining momentum any time if Japan announces further policy easing.
Another one is U.S. Treasury bonds, yields of which are at extremely subdued levels. But a single upbeat U.S. economic reading has the power to push up the yield meaningfully in a single trading session.
Yet another one is U.S. dollar which lost its status as a safe haven lately due to a dovish Fed and will likely be soggy in the near term.
Why Gold is a Play Now Irrespective of Brexit
Global Growth Issues: Forget Brexit, factors to keep theglobal marketedgy are lined-up at the current level. Fed-induced worries and a still-shaky Chinese economy are very much there to roil investors' sentiments at any point of time. The IMF and the World Bank cut their global growth forecast for this year.
Fed to Go Slow: The Fed chief's recent comments gave cues that the central bank is in no hurry to hike rates and will likely wait for clear signs of improvement from the U.S. economy - most importantly on the labor market. Notably, the Fed did not act this year after rising its key rates for the first time in a decade in December 2015. Choppy global financial markets and moderation in U.S. growth kept it from acting actively (read : Dovish Fed Trims U.S. Outlook: ETFs to Buy ).
With the slow Fed stance, the greenback will not gain strength, Treasury bond yields will be on the lower side and in turn non-interesting bearing gold investing will be favored.
Easy Money Policy in Other Parts of World: If this was not enough, in most of the developed economies, be it Japan or Europe or China, easy money policies are prevalent. Japan and the Euro zone also have negative interest policies in place. These gold-supportive policies will act as a leg-up for the yellow metal.
Global Inflation Outlook to Pick Up on Recovering Oil? A sustained oil price slump had crippled the inflationary outlook globally previously which in turn marred the need for inflation-hedged investing. But now, with oil prices on the mend, global inflation should gather steam and provide a fresh lease of life to inflation-hedged assets like gold (read: Best Oil Rally in 7 Years; 3 Energy ETF Winners ).
ETFs to Play
Apart from GLD, there are several other gold ETFs at investors' discretion. ETFS Physical Swiss Gold Shares ETF SGOL , Van Eck Merk Gold Trust ETFOUNZ , iShares Gold Trust ETFIAU and PowerShares DB Gold FundDGL are some of the outperforming ETFs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
ETFS-GOLD TRUST (SGOL): ETF Research Reports
PWRSH-DB GOLD (DGL): ETF Research Reports
VAN ECK MRK GLD (OUNZ): ETF Research Reports
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
