Gold has had an incredible bullish run since the markets opened for trading this year – the yellow metal is up 26% and analysts think you should buy more of physical gold. An incredible point in this year’s gold trading and investment is that ETF’s tracking the yellow metal has delivered exponentially bigger gains than the physical metal. The Direxion Shares Exchange Traded Fund Trust has gained a massive 587.% in the year-to-date period. However, the SPDR Gold Shares (ETF) has only scored 25.57% gains in the same period.
Gold trading and investing has been particularly interesting for traders and investors this year. The bullion has experienced exciting highs and disheartening lows but the predominant trends shows that the yellow metal is northbound. Investors and traders have also experienced increased volatility due to the effect of economic data and talks about an increase in interest rates by the U.S. Federal Reserve.
Is it high time to buy physical gold?
Jim Rickards, celebrated author and gold market expert thinks investors should buy less of ETFs such as Direxion Shares Exchange Traded Fund Trust and that investors should start buying the physical metal. Rickards, while speaking on CNBC’s Squawk Box observed that the yellow metal is bound for a bullish ascent because central banks have a fixation on spurring inflation.
In his words, “Every central bank in the world says they want inflation…they’ve come nowhere close…but that just means they are going to keep on trying; central banks cannot allow deflation because it increases the real value of debt… they are not going to rest until they get it”. Truth be told, the ECB and Bank of Japan have been trying to trigger inflation by slashing interest rates and introducing stimulus packages. More so, the U.S. Federal Reserve has been unable to go ahead with its plan to raise interest rates because of the mixed nature of recent economic reports.
If Central Banks retain their fixation on triggering inflation, the yellow metal will benefit in the long run. For one, investors consider the yellow metal as a hedge against inflation; hence, the demand for the bullion should increase when central banks eventually unlock inflationary trends.
The 2016 bullish bullion ride is still underway
Rickards conclude his advocacy for buying physical gold by saying, “Physical gold is very scarce; when the price really does break upwards, you’re not going to be able to get it. The time to get it is now.” However, there’s a marked difference between investors who hold physical bullion and those who hold paper bullion. Traders and short-term investors tend to lean towards paper bullion because of the liquidity it offers while long-term investors gravitate towards physical bullion.
If Rickards is right and the bullish trend in the yellow metal continues, we can reasonably expect ETFS such as the Direxion Shares Exchange Traded Fund Trust and SPDR Gold Shares ETF to book bigger gains going forward. It might be nice to keep 10% of your portfolio as physical bullion but paper bullion assets will still deliver bigger returns to traders going forward.