State Street Global Advisors and the World Gold Council have partnered up yet again to craft a gold-related exchange traded fund, except the new launch will help gold investors in an environment where the U.S. dollar is expected to appreciate.
On Thursday, SSGA rolled out the SPDR Long Dollar Gold Trust (NYSEArca: GLDW). GLDW comes with a 0.50% expense ratio.
The new gold ETF may help investors gain exposure to gold bullion price movements to hedge against potential market volatility, without worrying about the negative effects of a strengthening U.S. dollar.
“The price of gold and the US dollar have historically tended to move in opposite directions,” Nick Good, co-head of the Global SPDR business at State Street Global Advisors, said in a note. “By lessening the dollar’s potential impact on gold, GLDW seeks to provide investors the opportunity to realize the potential benefits of using gold as a strategic portfolio diversifier, while offering the ability to buffer against the potential adverse effects of a strong dollar on gold.”
For instance, from the end of 2013 through the end of 2016, the U.S. dollar appreciated against a basket of foreign currencies, and gold prices in USD declined from $1,205 per ounce to $1,146 per ounce, or a 5% decline. However, if an investor took away the strengthening dollar from the equation, gold priced in non-U.S. currencies, like the euro currency, rose from €873/oz to €1,096/oz, a 25% increase, according to Bloomberg data.
While gold traders may be put off with something like the SPDR Gold Shares (NYSEArca: GLD) during a strengthening dollar environment, GLDW may act as a good alternative.
“GLDW is basically an investment in gold for a strong dollar environment,” George Milling-Stanley, Vice President and Head of Gold Strategy at SSGA, told ETF Trends. “The likelihood of a strengthening dollar during 2017 has deterred some investors from buying GLD, so GLDW gives investors the opportunity to gain exposure to movements in the price of gold in a basket of foreign currencies.”