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What Lies Ahead for Gold ETFs?

Gold prices have had a mixed performance. Catalonia’s regional parliament made a declaration of independence last week. This led to a decline in regional equity markets and the euro, while gold increased on safe haven demand. Strong U.S. economic data led to a rally in the greenback and a decline in gold prices (read: 3 ETFs to Buy as New Home Sales Surge).


Factors Driving Gold Prices


U.S. Economic Data


U.S. equities have been rallying owing to multiple factors. GDP increased 3% annually in the July-September period compared with a 3.1% increase in the third quarter. Also, it surpassed expectations of a 2.5% increase.


President Donald Trump is expected to announce his decision on the Federal Reserve chair this week. Although gold prices suffered a bit on Fed chair uncertainty, markets believe that Trump is expected to hire Fed governor Jerome Powell to replace Janet Yellen. Powell is being seen as a dovish candidate who will not steer much from the current Fed policy.


Demand


The second-largest consumer of gold, India, generated lower festive demand compared with previous years. The Indian economy is yet to recover from the major shocks of demonetization and GST given by prime minister Narendra Modi, which impacted festive gold purchases.


Geopolitics and Political Uncertainty


However, the future is not that bleak for the precious metal. North Korea has been continuously testing missiles to develop a nuclear program in order to safeguard itself from potential U.S. invasion, per North Korean leader Kim Jong-Un. Moreover, North Korean diplomats have said that they have the potential of firing missiles to the U.S. mainland (read: ETF Strategies to Benefit from North Korea Tensions).


In a latest development, experts are expecting North Korea to conduct another nuclear test this week, as Trump is scheduled to visit China and South Korea later this week.


There are a lot of uncertainties surrounding Spain. Although Catalonia declared independence from Spain, Madrid responded by firing the Catalan parliament and calling fresh elections. Declaration of independence led investors to steer clear from Spanish assets, however, Madrid’s response led to a relative sense of calm among investors.


Let us now discuss a few ETFs focused on providing exposure to gold (see all Precious Metals ETFs here).


SPDR Gold Shares ETF GLD


This fund offers physical exposure to gold. It seeks to track the performance of the gold bullion and might turn out to be a cost-efficient way of gaining exposure to the commodity even after accounting for the fund’s expenses.


It has AUM of $34.6 billion and charges a fee of 40 basis points a year. It has returned 10.3% year to date but has lost 0.6% in a year (as of Oct 27, 2017). As such, GLD carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


iShares Gold Trust ETF IAU


This ETF seeks to provide exposure to prices of the gold bullion and can be used as a means to attain portfolio diversification or achieve hedging targets.


It has AUM of $9.5 billion and charges a fee of 25 basis points a year. It has returned 10.4% year to date but has lost 0.5% in a year (as of Oct 27, 2017). As such, IAU carries a Zacks ETF Rank #3 with a Medium risk outlook.


ETFS Physical Swiss Gold Shares ETF SGOL


This fund aims to track the performance of the gold bullion before fees and expenses and is a convenient way of gaining exposure to the metal.


It has AUM of $1.0 billion and charges a fee of 39 basis points a year. It has returned 10.3% year to date but has lost 0.6% in a year (as of Oct 27, 2017). As such, SGOL carries a Zacks ETF Rank #3 with a Medium risk outlook.

Another way of gaining exposure to the metal is through ETFs investing in commodity futures. Let us discuss one such ETF.


PowerShares DB Gold Fund DGL


This fund is appropriate for those looking for a cost-efficient way to invest in commodity futures. It seeks to match the performance of DBIQ Optimum Yield Gold Index Excess Return and generate return from the fund’s collateral holdings primarily consisting of safe government securities before fees and expenses. However, since this fund invests in the futures markets, it is not deemed suitable for all investors owing to the highly speculative nature of the investments.


It has AUM of $153.6 million and is relatively expensive as it charges a fee of 78 basis points a year. It has returned 9.3% year to date but has lost 1.6% in a year (as of Oct 27, 2017). As such, DGL carries a Zacks ETF Rank #3 with a Medium risk outlook.


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ETFS-GOLD TRUST (SGOL): ETF Research Reports
 
GOLD (LONDON P (GLD): ETF Research Reports
 
ISHARS-GOLD TR (IAU): ETF Research Reports
 
PWRSH-DB GOLD (DGL): ETF Research Reports
 
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