Why It Makes Sense to Keep Holding Gold ETFs?

Investor sentiment remained fragile in the first half of 2025, providing strong tailwinds for gold. Despite gradually easing geopolitical tensions, the Trump administration’s chaotic tariff policies, weakening greenback and central banks' increasing purchases of the precious metal have contributed to gold’s sustained appeal.

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Favorable fundamentals could position gold for further gains through late 2025 and into 2026. In such a scenario, increasing exposure to gold remains a smart strategy.

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.

Here’s why gold ETFs remain a compelling choice for investors.

Inflation Worries Remain Persistent

Expectations by some economists that inflation may worsen before easing toward the Fed’s target have kept investor interest in the yellow metal elevated. According to Investopedia, a growing number of analysts anticipate a surge in inflation during the second half of 2025, as importers begin passing President Trump’s tariff-related costs through the supply chain and ultimately to consumers.

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.

Rate Cuts and a Weaker Greenback Lift Gold Prospects

The greenback has been losing its strength and trading near multi-year lows, marking its worst first-half performance since the 1970s, with both technical and fundamental factors working against the currency. Per Trading View, U.S. Dollar Index (DXY) has fallen about 10.36% over the past six months and around 1.34% over the past month.

Gold prices are inversely related to the value of the U.S. dollar, and the greenback’s struggles in 2025 have been 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.

The yellow metal gains additional support from expectations of rate cuts by the Fed. 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 a 69.4% likelihood of a rate cut in September and an 89% likelihood of a rate cut in October. Goldman Sachs now anticipates three quarter-point rate cuts this year, up from just one cut, per the previous expectation, citing softening labor market trends and limited inflationary impact from tariffs, as quoted on Reuters.

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Central Banks Can’t Get Enough of Gold

According to the World Gold Council (WGC), in May, central banks added a net 20 tons to global gold reserves, an increase from the previous month, though the overall pace of accumulation has slightly eased.

Sustained central bank buying could drive gold prices up. Per the Official Monetary and Financial Institutions Forum (OMFIF) Global Public Investor 2025, as quoted on WGC, 32% of central banks plan to increase their gold holdings over the next one to two years.

What Else is Fueling Gold’s Bull Case

Even with stabilizing geopolitical conditions in the Middle East, the only word that can be used to describe the geopolitical landscape in 2025 is “complicated.” Amid the current economic and geopolitical climate, adopting a long-term passive investment strategy becomes the go-to approach for investors to weather short-term market storms.

Concerns over U.S. debt levels can add pressure to investor confidence, making investors risk-averse and increasing demand for safe-haven assets. President Trump’s tax-cut and spending bill was passed by Congress last week, reigniting the United States’ mounting long-term debt risks.

According to BBC, the tax-slashing bill is projected to add at least $3 trillion to the already staggering $37 trillion U.S. debt load. Per Reuters, lawmakers raised the U.S. government’s borrowing limit by an additional $5 trillion.

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. Increasing exposure to the yellow metal stands out as a smart play than attempting to time the market, an approach that many investors may be tempted to employ.

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. Each fund has a Zacks ETF Rank #3 (Hold).

With a one-month average trading volume of about 9.49 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 billion, the largest among the other options. Performance across all funds has remained largely consistent. The funds have gained about 15.6% over the past three months and about 39% over the past year.

Regarding annual fees, GLDM is the cheapest option, charging 0.10%, which makes it 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).

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