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How to trade gold rally with ETFs & stocks

The continued bullishness in the stock market and the two-year U.S. Treasury yields trading above 2% for the first time since 2008 failed to dull gold this year too. This is especially true as the bullion logged in the best January opening since 2013 and has now climbed to the highest level since August 2016.

A weak dollar environment has been driving the gold price higher. The dollar index, which measures the greenback’s value against a basket of six major currencies, weakened further from its three-year lows. A weak dollar is a huge boon to gold prices, as it makes gold affordable for holders of other currencies.

Trade fears arising from Trump’s protectionist stance lately are adding to the strength in the bullion market. Further, political instability in Washington, signs of rising inflation and geopolitical tensions are raising the appeal for the yellow metal as a store of value. If these weren’t enough, the latest crash in cryptocurrencies, which sapped some demand for gold, brought investors back to the traditional market of precious.

Coming to the demand side, a pick-up in the economy in many parts of the world has led to strong demand for gold. Per the World Gold Council, demand is expected to be robust this year thanks to synchronized global economic growth, shrinking central bank balance sheets, rising interest rates, frothy asset prices and market transparency.

The yellow metal is currently trading at nearly $1,360 per ounce, rising about 3% so far this year after registering its biggest annual rally in seven years. This has compelled investors piling up exchange-traded funds backed by gold, pushing assets to the highest level in more than four years.

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