The SPDR Gold Shares ETF experienced a notable surge during the third quarter, driven by increasing investor confidence in the Federal Reserve’s ability to achieve a “soft landing” for the U.S. economy.
As of September, investors seemed more optimistic that the Fed could avoid triggering a recession while managing inflation.
“There’s more confidence that we’re going to stick the soft landing,” remarked Michael Arone, chief investment strategist at State Street Global Advisors. However, he noted that soft landings are “rare,” and the rise in gold prices reflects lingering investor caution.
The SPDR Gold Shares ETF (GLD), which directly invests in physical gold, has climbed 27.1% year-to-date, including a 13% gain in the third quarter, outperforming the S&P 500’s 5.5% increase for the quarter and its 20.8% rise this year.
September also marked the beginning of the Fed’s interest-rate-cutting cycle, with a larger-than-expected half-point reduction aimed at avoiding a recession while curbing inflation. This dovish stance also fueled a rally in U.S. bonds.
The iShares Core U.S. Aggregate Bond ETF (AGG), which tracks the investment-grade bond market, posted a 5.3% gain in the third quarter, while riskier corporate bonds like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw a 5.7% increase during the same period.
Arone suggests that despite optimism for a soft landing, a small allocation to gold remains prudent to hedge against unforeseen economic risks.
He advocates for long-term investors to consider a 3% to 10% allocation to gold, noting that declining rates are making gold a more attractive hedge, especially as the “opportunity cost” of holding the metal diminishes.
