Gold-backed ETFs are again in focus as gold (or Au) continued its climb with a bullish trajectory towards a record high, with investors increasingly turning to such funds as a hedge against stock market volatility driven by technology stock valuations and US interest rate cuts, according to a Bloomberg report.
• SPDR Gold Shares stock is showing upward bias. Where is GLD stock headed?
Spot gold strengthened as much as 1.2% on Monday, approaching a level seen in October, in a continuation of a streak of gains not seen since a peak last year.
The metal rallied after a brief pullback in Friday trading, in which a risk-off sentiment influenced trading in a sector of stocks among this year's top performers in relation to AI technology or artificial intelligence.
Gold's short-term correlation with stocks increased over recent months but remains an attractive asset in a time of uncertainty in financial markets.
Gold ETFs In Focus
Based on the ETF flows, it can be noted that investors demonstrated their macro views via physically supported gold investment products rather than using gold futures or bullion investments. Reports from World Gold Council statistics, as cited by Bloomberg, have indicated a month-by-month rise in gold investment through ETF products, with May being the exception in a period when equity markets were largely optimistic.
SPDR Gold Shares Trust (NYSE:GLD) continues to be a leading platform used by institutional and active managers for tactical portfolio investment in gold.
Backed by gold bullion and being one of the most liquid commodity ETFs in the world, GLD is widely used in hedging a portfolio during stressful equity markets or during macro events like Fed decisions on interest rate policies and U.S. economy statistics. On Friday, flow data aggregated by VettaFi shows positive, albeit moderate, inflows of more than $300 million.
In regard to long-term investors, a lower-cost alternative offering similar physical exposure, iShares Gold Trust (NYSE:IAU), gained traction as IAU quietly pulled in more than $262 million of smart money on Friday.
As IAU charges a smaller expense ratio compared to GLD, most investors have considered it a preferable choice for strategic gold investment in a diversified portfolio rather than focusing on short-term gold price fluctuations. The recent increase in gold prices has enhanced IAU's popularity among investors seeking hedge protection against market volatility and potential policy-driven inflation risks.
Those investors looking for exposure to precious metals while maintaining a heavy emphasis on gold can consider Aberdeen Physical Precious Metals Basket Shares (NYSE:GLTR) to their portfolio. Although not a pure play gold investment, GLTR's diversified portfolio gives investors access to gold’s safe-haven investments in addition to other precious metal investments. The fund has gained 76% this year so far.
Rates, Politics, Macro Trends
U.S. monetary expectations are another important driver of gold and gold ETP demand. Weak U.S. nonfarm payrolls, due Tuesday, will boost prospects for interest rate cuts next year, the Bloomberg report noted. A weaker U.S. dollar environment is a further tailwind to bullion prices over recent days.
Political events have added another degree of uncertainty. In an interview with the Wall Street Journal last week, U.S. President Donald Trump reiterated his preference to aggressively cut interest rates.
Gold is up by 65% this year, and gold ETFs have thus proven to be an efficient way of getting exposure to gold without incurring all the associated costs and complexities of dealing with gold metal.
As investors re-think their exposure to over-valued stocks and game-plan for a possible lower interest-rate environment, gold ETFs are again establishing their fundamental importance in portfolio hedges, demonstrating that when markets become volatile, gold remains the heavy lifter.
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