The current economic landscape underscores rising uncertainty and fragile confidence of investors. Fed Chair Jerome Powell’s recent comments at the Jackson Hole symposium, persistent geopolitical frictions and increasing inflation expectations have provided strong tailwinds for gold, reinforcing its safe-haven appeal and resulting in a rally in gold prices.
Strong fundamental indicators could extend gold’s gains into late 2025 and 2026, boosting the case for increased portfolio allocation.
This is why gold ETFs remain a compelling choice for investors.
Gold Outlook Shines on Fed’s Dovish Surprise
According to Reuters, Powell’s speech at Jackson Hole last Friday signaled that an interest rate cut could be on the table at next month’s meeting, providing a boost to gold prices.
The greenback’s value tends to move inversely with interest rate adjustments by the Fed. Interest rate cuts by the Fed make the dollar less attractive to foreign investors, as this weakens the U.S. dollar.
Per the CME FedWatch tool, markets are anticipating an 87.3% likelihood of a rate cut in September, marking an increase from 75% before Powell’s Jackson Hole speech. Markets also estimate a 93.6% likelihood of a rate cut in October and a 98.7% likelihood of a rate cut in December, according to the CME FedWatch tool.
According to Reuters, several major brokerages, like Barclays, BNP Paribas and Deutsche Bank, are now forecasting a 25-basis point rate cut by the Fed in September.
Weaker Dollar to Give Gold a Further Lift
Also, gold prices are inversely related to the value of the U.S. dollar, and the greenback’s struggles in 2025 have acted as a tailwind for the yellow metal. 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 Trading View, U.S. Dollar Index (DXY) has fallen about 7.79% over the past six months and around 9.79% year to date. Over the last five days, DXY has seen a decline of 0.37%.
Unfavorable Inflation Expectations Make Gold a Go-To Hedge
Across extended investment periods, gold preserves its purchasing power, outpacing inflation and diversifying an investment portfolio due to its historical tendency to have a negative correlation with other asset classes.
In addition to indicating a September interest rate cut, Powell also highlighted increased inflation concerns last Friday.
According to Reuters, inflation expectations are rising, with consumers’ 12-month inflation expectations jumping to 4.9% in August from 4.5% in the previous month. The long-term expectations increased to 3.9% from 3.4%.
What Else is Fueling Gold’s Bullish Case?
Central banks are increasingly moving to strengthen their gold reserves, and sustained central bank buying may drive up gold prices.
Continued geopolitical and economic instability make investing in the yellow metal an attractive investment strategy. Adopting a long-term passive investment strategy becomes the go-to approach for investors to weather short-term market storms.
Additionally, with growing concerns over AI stability following comments by OpenAI CEO Sam Altman and a report by MIT’s Project NANDA, diversification has become increasingly crucial. Gold offers investors a proven way to balance risk and protect portfolios (Read: Diversify With ETFs and Stay Ahead in Volatile Markets).
ETFs to Consider
Investors can enhance their exposure to the precious metal to potentially boost portfolio gains and better prepare for an uncertain market environment going forward.
Investors should not be discouraged by any likely decline in gold prices. Rather, they should adopt a “buy-the-dip” strategy. Given the increasing macroeconomic uncertainty and geopolitical volatility, gold remains an essential hedge for all investors, regardless of their investment theme.
Investors can consider SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM, abrdn Physical Gold Shares ETF SGOL and Goldman Sachs Physical Gold ETF AAAU to increase their exposure to the yellow metal.
With a one-month average trading volume of 8.37 million shares, GLD is the most liquid option, ideal for active trading strategies. However, implementing an active strategy in the current landscape may not be the most effective approach.
GLD has also gathered an asset base of $102.67 billion, the largest among the other options. Performance across all funds has been largely consistent. The funds have gained about 0.33% over the past month and about 35.6% over the past year.
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.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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