The new gold play as investors look to hedge against risk, volatility

Gold has long been viewed as a safe-haven investment, and money has typically flowed into the asset as a hedge during uncertainty and volatility.

This year, the tailwinds around tariffs and inflation have pushed the precious metal to a string of record highs. It’s also helped to bolster the growing number of gold-focused ETFs, which can offer the same hedge and protection more easily within a portfolio.

“We are seeing unprecedented levels in terms of interest for the gold market, in particular gold-backed exchange-traded funds,” Joe Cavatoni, World Gold Council managing director, told CNBC’s Leslie Picker on a recent edition of CNBC’s “ETF Edge.”

Global gold ETFs saw inflows of $3.2 billion in July, according to data from the World Gold Council, on track for its second-strongest year on record.

Cavatoni said that growth has come from the U.S. — where the World Gold Council is tracking record inflows from American investors — as well as globally, especially from Asia. “While people are comfortably continuing to stay risk on, I think they’re really starting to get a very significant appreciation for how you need to hedge that, and gold fits that bill perfectly,” he said.

Whether it’s in its physical form, stocks of mining companies, or via ETFs, the gold trade has continued to see momentum. While a recent concern that gold could face tariffs added some uncertainty around the precious metal, the Trump administration squashed that rumor, leading many to see another rally ahead.  

That could lead more investors to dip their toes into gold ETFs, especially as it provides investors an easier way to get in on the trade and diversify their portfolio.

Mike Akins, founding partner of ETF Action, told CNBC that while the inflows into gold ETFs have been “staggering, especially compared to the last several years,” if you look at those holdings compared to S&P 500-focused ETFs, “people are less hedged as a percentage of the equity market than they were 10 years ago, even though those flows are coming in.”

“There’s probably a lot of room for more allocation into gold ETFs if you’re thinking about it as a percentage allocation hedge to your overall portfolio,” Akins said.

Cavatoni said that looking at the various investment options into gold, gold-focused ETFs are a smaller component of that trade, but he noted that you shouldn’t “lose sight of the fact that gold trades over the counter and physical gold ownership, which we’re seeing in the investment landscape, are continuing to grow on a global basis.”

That bullishness around gold could act as a further boost to gold ETFs, much like the continued rise of bitcoin has helped to propel bitcoin ETFs as more investors look for effective hedges amid continued concerns around inflation.

“U.S. bitcoin ETFs make up about 7% of the total market capitalization of bitcoin. Gold, it’s less than a percent,” Akins said.

Both Akins and Cavatoni say they see continued room not only for gold to grow, but also for gold ETFs.

“If you’re just looking at the gold market, it’s hard to beat any of the ETFs in terms of tracking the spot price,” Akins said. “It’s a great allocation vehicle, and exactly what ETFs were designed to be.”

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