Following weekend remarks from President Trump suggesting that the United States and Iran were close to finalizing a memorandum of understanding aimed at reopening the Strait of Hormuz, gold prices moved higher, per Reuters.
The prospect of easing tensions pressured the dollar and reduced oil prices, improving the broader inflation outlook and sending gold prices rising more than 1% on Monday. According to TradingView, gold price is up about 1.75% over the past five trading sessions and 10.37% over the past six months.
The yellow metal has gained around 38.37% over the past year and 5.45% year to date. Investor appetite for gold has also strengthened in recent weeks. According to LSEG Lipper data, as quoted on Reuters, gold and precious metals funds attracted $2.34 billion in net inflows during the week ended May 20, extending their inflow streak to a second consecutive week.
The Weak Dollar Tailwind for Gold
A weaker U.S. dollar generally leads to higher demand for gold, pushing its price upward as it becomes more affordable for buyers holding other currencies. Per TradingView, the U.S. Dollar Index (DXY) has fallen 0.30% over the past five trading sessions and 0.87% over the past six months. The index has recorded an all-time decline of 17.45%.
The Inflation Tug-of-War
Gold has traditionally been viewed as a hedge against inflation, often attracting investor interest during periods of rising price pressure. However, elevated energy costs also raise the risk of a prolonged higher-interest-rate environment, creating a significant headwind for non-yielding assets like gold.
Even so, lingering inflation fears continue to support investor demand and fund flows into gold, helping sustain its longer-term bullish outlook. Over extended investment horizons, gold has historically demonstrated an ability to preserve purchasing power and outperform inflation.
Rising optimism surrounding a potential agreement between Washington and Tehran is emerging as a positive catalyst for gold, as easing geopolitical tensions could help cool energy-driven inflation concerns. Lower pressure on oil prices may, in turn, reduce fears of persistent inflation and diminish expectations of a Fed rate hike, creating a more supportive backdrop for the precious metal.
The Waiting Game Could Favor Gold
While the near-term outlook for gold may remain uncertain amid the possibility of a hawkish Fed stance, the metal’s long-term investment case remains firmly intact. In fact, the recent pullback in prices could offer an attractive entry opportunity for long-term investors.
Gold continues to play a critical role as a portfolio hedge across multiple investment themes, particularly in an environment marked by persistent market volatility and macroeconomic uncertainty.
Rather than being discouraged by short-term weakness in gold prices, investors may view such dips as opportunities to gradually build exposure through gold ETFs using a disciplined buy-the-dip strategy. The price of the yellow metal is down about 2.61% over the past month.
Against the current market backdrop, maintaining a long-term and passive investment approach could help investors navigate short-term fluctuations more effectively, with gold continuing to stand out as a valuable diversification and defensive portfolio allocation.
Gold ETF That Investors May Want to Watch
Below, we have highlighted a few funds in which investors can increase their allocation to gain greater exposure to gold.
Investors can consider SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM and iShares Gold Trust Micro IAUM to increase their exposure to the yellow metal.
With a one-month average trading volume of 5.95 million shares, GLD is the most liquid option. GLD has gathered an asset base of $149.86 billion, the largest among the other options. Regarding annual fees, GLDM and IAUM are the cheapest options, charging 0.10% and 0.09%, respectively, which makes them more suitable for long-term investing.
Gold Miner ETFs to Keep on the Radar
These ETFs focus on gold miners, usually magnifying gold’s gains and losses. They provide access to the gold mining industry, not the commodity’s price.
Investors can consider VanEck Gold Miners ETF GDX, Sprott Gold Miners ETF SGDM and Sprott Junior Gold Miners ETF SGDJ.
With a one-month average trading volume of 20.18 million shares, GDX is the most liquid option. GDX has also gathered an asset base of $26.23 billion, the largest among the other options. Regarding annual fees, SGDM is the cheapest option, charging 0.46%.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
VanEck Gold Miners ETF (GDX): ETF Research Reports
Sprott Gold Miners ETF (SGDM): ETF Research Reports
Sprott Junior Gold Miners ETF (SGDJ): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).