It appears that good times are returning for gold investors. After a brief but sharp pullback on Tuesday after an enormous advance to $1260, gold is up $12 an ounce today once more, with gold miners aggressively following suit even with the market strongly higher, dispelling the notion that gold is being sought exclusively as a safe haven.
At the height of the financial crisis in 2008, everything went down together except the dollar. Once the stock market was clearly in another bull phase by 2011 and more importantly inflation numbers tanked, gold’s charm started to wane as investors forgot about inflation and chased stock gains. After one of the longest bull markets in history running 12 years, the last 4 years have not been good for gold, and indeed gold stocks have experienced one of the most devastating and drawn out bear markets in history for any sector.
Adding to the fuel of the current gold spike, hopes that the Federal Reserve would increase the benchmark federal funds rate another 75 basis points this year have waned. Now fearing perpetual low interest rates, investors are looking at gold once again. Part of the bear market may have been caused by the expectation that zero interest rates were only temporary. Now market participants may be starting to question that assumption.
While zero interest rates of course can not last literally forever, it may be dawning on people that the only thing that would cause the Fed to raise them meaningfully is a meaningful rise in inflation, which would benefit gold to a much greater extent than a rise in interest rates would hurt it.
Currently, gold is trading higher by $12 at $1,212 an ounce, at the day’s highs. In the last year , gold’s low clocked in at $1,046.44 and its high at $1,263.48. So far in 2016, gold has seen returns of 13.81% in US dollar terms.
The SPDR Gold Trust (NASDAQ:GLD), the iShares Gold Trust, and the Sprott Physical Gold Trust (NYSEARCA:PHYS) are all up nearly a full percent today along with the rest of the equity market.