The SPDR Gold Shares (NYSEArca:GLD), iShares Gold Trust (NYSEArca:IAU) and ETFS Physical Swiss Gold Shares (NYSEArca:SGOL) are among the leading gold exchange traded products, but there are some alternatives worth considering.
Those alternatives include the SPDR Long Dollar Gold Trust (NYSEArca:GLDW), which debuted earlier this year. 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.
GLDW tries to reflect the performance of the Solactive GLD Long USD Gold Index, which is designed to represent the daily performance of a long position in physical gold and a short position in the FX Basket comprised of euro, Japanese yen, British pound, Canadian Dollar, Swedish krona and Swiss franc. The performance of the USD against the currency basket will determine whether the index increases or decreases the amount of gold held.
“With a heightened level of political uncertainty permeating throughout the investment ecosystem, investors are more focused on reappraising potential tools to mitigate risk and generate uncorrelated returns. As a result, gold-backed ETFs have seen nearly $2 billion of inflows in 2017,” according to a recent note from State Street.
In the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates as many as three times this year, gold prices could move modestly higher with some help from emerging markets, namely China and India.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
“As we have gotten further into 2017, five-year real interest rates have oscillated between negative and barely positive. This is a positive factor for gold. In addition, many investors have sought out gold as a core diversifier and hedge against unexpected macroeconomic and geopolitical events—neither of which has been in short supply in 2017,” according to the World Gold Council.
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GLDW’s underlying index can increase in value when the price of gold increases and/or when the value of the USD increases against the value of the foreign exchange basket. However, the index can decrease in value when the price of gold falls or when the value of the USD depreciates against the forex basket
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.