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As of late 2024, exchange-traded fund (ETF) investors are increasingly bullish on gold and fixed-income strategies, largely due to shifts in Federal Reserve policies and global economic factors. Cinthia Murphy, an investment strategist at VettaFi, explained to Yahoo Finance that gold has hit over 30 new record highs this year, driven by lower interest rates following the Fed’s recent cuts. Gold’s inverse relationship with interest rates makes the precious metal particularly attractive when rates fall, as it serves as a hedge against inflation and economic instability.
- Gold ETFs are seeing a surge in demand, with prices hitting over 30 record highs in 2024 due to Fed rate cuts.
- Gold acts as a hedge against inflation and geopolitical tensions, attracting both investors and central banks.
- Fixed-income assets, particularly longer-duration bonds, are becoming more appealing as interest rates decline.
- Aggregate bond ETFs, like iShares AGG and Vanguard BND, are popular for domestic portfolios, while active management is favored internationally.
- Analysts predict gold prices could surpass $3,000 per ounce, driven by strong central bank demand and recovering industrial use.
Murphy highlighted that the catalysts for gold’s performance are firmly in place. “Lower rates are good for gold prices,” she emphasized, pointing to how investors see the metal as a safe haven amidst uncertain economic conditions, even as inflation appears to be somewhat contained. Investors are flocking to gold ETFs, with sustained inflows since mid-2024.
Geopolitical tensions are also bolstering gold’s allure. According to UBS, conflicts in the Middle East and Ukraine have reinforced gold’s status as a geopolitical hedge. Central bank demand for gold, which accounts for about a quarter of total demand, remains robust. In tandem, Fed rate cuts have reduced the opportunity cost of holding non-yielding assets like gold, driving even more investor interest into gold ETFs.
Beyond gold, fixed-income assets have come into focus. With the Fed’s rate cuts, longer-duration bonds are becoming more appealing. As Murphy explained, investors are moving away from cash-like investments and money market funds, which have yielded strong returns amid high rates, to longer-duration bonds. This trend is reflected in the performance of aggregate bond ETFs like the iShares Core US Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market Index Fund ETF (BND), which have seen increased demand.
Dylan Smith of Rosenberg Research further affirmed gold’s long-term potential, predicting that the precious metal’s next rally could push prices above $3,000 per ounce. Smith noted two distinct rallies for gold in 2024, both supported by strong central bank demand and emerging market interest. He also pointed out that industrial demand for gold, which had been weak, is now showing signs of recovery. This recovery, along with constrained output in the mining sector, is adding more fuel to the metal’s upward momentum.
The landscape for fixed-income assets is also shifting. According to Murphy, international bond markets are seeing a growing trend toward active management strategies. The complexity of different central banks’ rate policies means active managers can add value by choosing bonds based on duration and credit quality, especially in global portfolios. As domestic and international central banks adjust their rate strategies, investors are reevaluating how to balance risk and returns across their portfolios.
For ETF investors, 2024 is shaping up to be a year of opportunity, especially in gold and bonds. With geopolitical uncertainty, fluctuating central bank policies, and shifting market dynamics, diversification through commodities and fixed income remains a critical strategy for managing risk while capturing potential upside.