Outlook For Precious Metal ETFs [SPDR Gold Trust (ETF), Market Vectors Junior Gold Miners ETF]

gold silver metalsInvestors who thought that gold will continue to do badly this year as well were definitely caught on the wrong foot, at least going by latest trends. The precious metal which lost roughly 30% last year, the most in more than three decades, has gained back around 10% since the start of the year.

The metal had slumped last year in the wake of taper concerns, a strong dollar and an equity market rally. 2013 also marked an end to gold’s 12-year bull run, but some positive trends are formulating for this year.

Gold has recently shown some strength on the back of renewed geo-political tensions between the West and Russia over Ukraine and is currently hovering near its three-week high. Following the annexation of Crimea, Russia has been blamed for sending troops to the Ukraine border.

The violence between pro-Russian separatists and Ukrainian government forces has been escalating each passing day, pushing up gold’s appeal as a safe haven.

Pro-Russian separatists have paid deaf ears to an ultimatum to vacate occupied government buildings in eastern Ukraine and have in fact seized more buildings after the government failed to carry out its crackdown threats, according to a Reuters report.

Around 40,000 Russian troops are believed to be present in the vicinity of the Ukrainian border in addition to the 25,000 Russia troops based illegally in Crimea.

Russia is expected to face tougher censure and even more severe sanctions from U.S. officials following the recent worsening of the crisis, which experts think is an attempt on Russia’s part to add more to its territory.

The U.S. and the European Union had earlier lifted a host of sanctions on Russia, including blacklisting Russian officials and businessmen. It is expected that the U.S. might further step up its sanctions on Russia and impose sector sanctions in energy, banking and mining (read: March ETF Report: U.S. Equities Thrive, Emerging Markets Suffer).

Moreover, the yellow metal also gained strength as the Fed recently signaled tapering at a rate slower than what was earlier predicted by most market experts.  Rock-bottom interest rates and a weak-global economy were the primary reasons for the spectacular rally gold witnessed from December 2008 to June 2011, during which it rose around 70%.

Escalating geo-political tensions, a weak equity market and a sluggish pace of U.S. recovery are believed to be the primary factors for gold regaining strength. The demand for gold as a safe haven metal is once again on the rise.

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