Gold (GLD) and silver (SLV) ETFs to benefit from the REPO Act

The prices of gold and silver are doing well this year. Silver soared to a high of $29.75 this month, much higher than last year’s low of $20.73. Gold, on the other hand, has jumped to almost $2,500 and analysts believe that it will jump to over $3,000 this year.

As a result, the popular SPDR Gold ETF (GLD) and the iShares Silver Trust (SLV) ETFs have continued rising. They have also seen substantial inflows, with their assets standing at over $63 billion and $11 billion, respectively.

The most important reason for the gold price rally has been the stubbornly high inflation levels in the US. Data shows that the headline Consumer Price Index (CPI) moved to 3.5% while the core CPI moved to 3.8%. 

As a result, analysts believe that the Federal Reserve will not cut interest rates any time soon. Many of them have started to position their portfolios for a rate hike or no cut this year after all. Gold is often seen as an inflation hedge.

There is another important catalyst for the gold price. On Saturday, the House of Representatives passed the $100 billion package for Ukraine, Taiwan, and Israel.

Hidden inside the bill was a section known as the REPO Act, whose goal is to use Russia’s assets in the US and other western countries. The estimate is that the US will have access to between $7 billion and $8 billion of these funds.

The REPO Act makes sense on paper as it will help Ukraine to defend itself against Russia’s invasion. However, it will have major unintended consequences that will have a positive impact on gold demand.

For one, it will make many foreign countries fearful of purchasing US Treasuries since they can be seized in case of disagreements with the US. Indeed, many of the world’s biggest buyers of US paper have been dumping them. 

China has slashed its holdings of US Treasuries to a 14-year low of $775 billion. At its peak, the country held Treasuries worth over $1.3 trillion. Japan slashed its holdings to $1.19 trillion.

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— Mike Lee (@SenMikeLee) April 20, 2024

Gold will be the most obvious alternative to these countries because it cannot be censored or sanctioned. As a result, there is a likelihood that the price of gold will keep rising as demand rises.

The REPO Act will have another unintended consequence in that many western countries are still operating in Russia. As a result, the Russian government will have a chance to seize and liquidate these assets.

Remember, Western sanctions have not worked as Russia has pivoted to Asian countries like India and Russia. For example, Russia’s ural oil price has remained above the price cap target of $60.

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