Gold ETFs Remain Popular as an Inflation Hedge, Safety Play

Despite a rising interest rate outlook, gold exchange traded funds remain a popular play to combat elevated inflation levels.

For example, the SPDR Gold Shares (NYSEArca: GLD), the largest gold-related ETF by assets, has brought in a little over $7.3 billion in net inflows over the first four months of 2022, according to ETFdb data.

According to CFRA data, gold and other precious-metals ETFs attracted 57.5% of the $21.4 billion in positive inflows in to the commodities category over the first four months of the year, the Wall Street Journal reports.

In its first-quarter Gold Demand Trends publication, the group revealed that global investment demand, which includes gold-backed ETFs, physical gold bars, and coins, rose 203% over the quarter, to 551 metric tons, compared to 182 metric tons for the same period in 2021, Barron’s reports.

The increase in gold bullion was led by ETF demand, which contributed to 269 metric tons compared to outflows in 2021’s first quarter. This also marked the highest level of quarterly flows since 2020’s third quarter.

“Historically, commodities offer the best protection against rising inflation compared to equities and other asset classes,” Jim Wiederhold, associate director of commodities and real assets at S&P Dow Jones Indices, told the WSJ. “And they tend to rise during times of geopolitical risk. We see this happening in real time as the Ukraine-Russia War rages on.”

The strong demand for gold comes even as the Federal Reserve begins its interest rate hike cycle, with a 50 basis point hike on Wednesday. Will Rhind, chief executive of GraniteShares, issuer of the GraniteShares Gold Trust (BAR), argued that gold holds an advantage over cash and bonds if nominal rates are positive. Still, real rates remain negative, so gold isn’t losing value.

The gold market was already priced in a 50 basis point hike, which may be a contributing factor for why gold prices slipped modestly then and rebounded, according to Rhind.

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