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Can Gold ETFs Bounce Back On Recessionary Fears?

Gold closed out 2021 with a loss of 3.6%, marking its biggest annual decline since 2015. Although 2022 has been extremely downbeat for stocks, gold has not posted a blockbuster performance either. The biggest gold bullion ETF SPDR Gold Shares GLD is up 0.2% this year compared with a 21% decline in the S&P 500. Still, the yellow metal went a long way in protecting investors’ assets.

Investors now will be curious to know what lies in store for gold ETF investing for the rest of 2022. Let’s figure out.

But Can Recessionary Fears Boost Safe-Haven Gold?

Several market watchers expect the U.S. economy to slip into recession in the near term due to faster and hefty Fed rate hikes. The Fed has downgraded its forecast for 2022 median real GDP growth from 2.8% in March to 1.7% for 2022. It has also lowered the growth rate expectations to 1.7% (from 2.2% in March) for 2023 and 1.9% (from 2% in March) for 2024. The unemployment rate is projected to rise from 3.5% to 3.7% for 2022, 3.5% to 3.9% for 2023 and from 3.6% to 4.1% for 2024.

If recessionary fears heightened, gold may gain some strength. The inflation projection has been upped for this year, while the Fed expects inflation to cool off in 2023 and 2024. Gold is often viewed as an inflation-protected asset.

But as the Fed is hiking rates and the greenback may rise backed by a hawkish Fed, gold does not have a very strong case for outperformance. The federal funds rate is projected to be 3.4% for 2022 from 1.9% in March, 3.8% for 2023 from 2.8% and 3.4% for 2024 from 2.8%. Gold is non-interest-bearing and hence it underperforms in a rising rate environment. Plus, gold shares an inverse relationship with the greenback.

Renewed Upsurge in Virus Cases

Infections caused by new coronavirus strains had a considerable adverse impact on Wall Street in the previous waves. Even if we have handled the latest strain Omicron, further mutations of the virus may continue to throw the global market in a wavering zone occasionally. The central banks will not likely be of much support anymore and a massive fiscal support is also unlikely. All these factors can brighten up the safe-haven trait of gold.

U.K., China and India’s Covid-19 cases rose lately. China's capital Beijing is experiencing an "explosive" COVID-19 outbreak connected to bars. The commercial hub, Shanghai, conducted mass testing this month to contain a jump in cases tied to a hair salon, as quoted on Reuters.

ETFs in Focus

Against this backdrop, investors can keep track of regular gold ETFs like SPDR Gold Shares (GLD), iShares Gold Trust IAU, Aberdeen Standard Physical Swiss Gold Shares ETF SGOL, SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Shares BAR.


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SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Gold Trust (IAU): ETF Research Reports
 
abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports
 
GraniteShares Gold Trust (BAR): ETF Research Reports
 
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
 
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