Gold glitters as global economy slows

August 6, 2019

Gold is back in the news.

The precious metal broke through the US $1,400 an ounce level in mid-July reaching its highest level in six years. Gold’s rise is linked to the downward spiral in bond yields. As the global economy slows down, central banks have indicated that a new round of interest rate cuts are on the way. That has pushed down the yield on bonds with the yield on some sovereign issues now in negative territory.

For the past six years, bullion has faced resistance at about $1,350 an ounce. That changed in June, when the U.S. Federal Reserve relaxed its stance on interest rates. Spot prices touched US $1,453.09 on July 19 and as of August 6, the spot price was US $1,475.60, the highest since 2013.

In related news, Ray Dalio, the founder and co-manager of the Bridgewater Associates hedge fund, is making a case for a bigger rise in gold as central banks get more aggressive with policies that lower rates and devalue currencies.

In a Linkedin post, Dalio writes about “paradigm shifts” in investing. He said investors have been buying stocks and other equity-like assets in the face of declining rates, but as they face diminishing returns will be looking elsewhere for returns.

The most promising alternatives are those that “do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” he said.

Harvest Portfolios Group launched a global gold ETF in January 2019. In a Q&A at the time, Harvest CEO Michael Kovacs explained why the company launched the Harvest Global Gold Giants Index ETF (TSX: HGGG)  

“In developing the Harvest Global Gold Giants Index ETF (HGGG:TSX), the objective was to provide an index product that would track the performance of the top 20 global gold producers by market capitalization. With this approach to the gold market, investors don’t have to own the commodity directly, store it, and insure it while it generates zero earnings”

Harvest works with Solactive, a German company, which helped build the index that HGGG tracks, the Solactive Global Gold Giants Index.  Their criteria is to choose by market weight the top 20 global gold miners.

Most of them are in Canada, the United States, the UK and Australia. The ETF has a 0.40% management fee.  There are no distributions paid on a regular basis, however, if the ETF has net income at the end of the year, it will be distributed.

For more on Harvest Portfolios Group click here.

The views and/or opinions expressed in the blog are of a general nature and are for informational purposes only. Blog contents should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies. Investors should consult their investment advisor before making any investment decision.

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