A gold exchange traded fund is the best performing commodity-focused U.S. fund this year. Contributing to the outperformance in this particular investment, the ETF backed by euro-currency-denominated gold.
The AdvisorShares Gartman Gold/Euro ETF (NYSEArca: GEUR), an actively managed ETF that tracks gold in euro terms, has increased 11.3% year-to-date while the SPDR Gold Shares (NYSEArca: GLD) has dipped 1.4% so far this year. GEUR has outperformed all 113 other unleveraged U.S.-listed commodity ETFs, reports Rachel Evans for Bloomberg. [Gold in Euro Terms ETF Capitalizes on ECB’s QE Plan]
Looking at the commodity spot price, the gold spot price is down 0.2% year-to-date, whereas the euro gold spot price has increased 11.8%.
“Most gold investment vehicles use the U.S. dollar for making gold purchases,” according to AdvisorShares. “GEUR’s ‘Gold Financed in Euro’ strategy offers an investor the flexibility to choose an alternative funding currency for their gold purchases.
Bolstering the euro spot price of gold, the euro currency has depreciated to a 12-year low. Gold has become a much more attractive asset and provides a better store of value as the European Central Bank fires up its money printing press, actively devalues its currency, flames inflationary pressures and pushes yields into negative territory.
Gold has never paid a yield. However, with investors forced to pay for the pleasure of holding Eurozone government bonds, more may be turning to euro gold as an alternative.
“This led to yields moving into negative territory in some cases, and that makes the macroeconomic environment very attractive to non-yielding assets such as gold,” Mitsubishi analyst Jonathan Butler said in an Economic Times article.
The Gold/Euro ETF utilizes exchange-traded currency futures or “over-the-counter” foreign exchange forward contracts with maturities under six months to borrow euros to fund the gold purchases.
“For investors that are accustomed to buying and selling gold in US dollar terms (a widely used benchmark in other Gold ETFs), GEUR seeks to neutralize US dollar risk,” according to AdvisorShares.
Some observers, though, warn that the shelf life of local-currency-denominated gold bull market may be short lived. For instance, gold in yen has remained relatively flat, even though the Bank of Japan has employed similarly aggressive measures for a much longer period. The AdvisorShares Gartman Gold/Yen ETF (NYSEArca: GYEN) was down 0.5% so far this year.
“Our forex strategists found that the impact of QE on the local currency fades over time,” Commerzbank analyst Carsten Fritsch said in the Economic Times article. “Since ECB QE just started, it will take some time. Note that Japan started its QE programme two years ago. It is therefore plausible that ECB QE will boost gold in euro terms at least until end-2016.”
AdvisorShares Gartman Gold/Euro ETF
For more information on the bullion markets, visit our gold category.
Max Chen contributed to this article.