Diversify with Gold ETFs in a More Volatile Market Outlook

Juan Carlos Artigas, Director, Investment Research at World Gold Council, pointed out that the U.S. dollar continues to influence gold prices, with the inverse relationship showing that a weaker USD and a strengthening gold this year.

Alistair Hewitt, Director, Market Intelligence at World Gold Council, added that the physical gold market continues to see steady demand from bars, coins, jewellery, central banks, other institutions and the technology sector. Retail investment demand for physical gold is even up 29% year-over-year for the third quarter of this year. However, investors have shunned ETFs and similar fund products this year.

Carlos Artigas expected investment demand for gold will pick up as high stock valuations, market risk, uncertainty and central bank policies shake up the markets in the year ahead. For example, while gold-backed ETFs have not been that popular in North America, these gold ETFs saw close to $3 billion in new inflows this year in European markets, which reflects the ongoing need for diversification and risk hedging in a charged environment. Furthermore, the strategist believed that consumer demand, notably in emerging markets like China and India, will take the lead, especially due to economic growth that would increase discretionary money and structural reforms in these economies.

As investors look to gold for a way to diversify a traditional portfolio mix, George Milling–Stanley, Vice President, Head of Gold Strategy at State Street Global Advisors, pointed to a number of gold-backed ETF options, such as the SPDR Gold Shares (NYSEArca: GLD), the largest physically backed gold-related ETF on the market and go-to option for gold exposure.

The World Gold Council and State Street Global Advisors also expanded on the gold ETF theme with the launch of a relatively new offering that provides the cheapest exposure along with a low share price to those investors seeking exposure to the yellow precious metal. The SPDR Gold MiniShares Trust (NYSEArca: GLDM) has a 0.18% expense ratio and was initially listed at a per-share trading price of 1/100th of an ounce of gold, as represented by the LBMA Gold Price PM (USD).

Additionally, if the U.S. dollar strengthens, investors may still capture the potential upside in gold or hedge against potential market risks without worrying about an appreciating USD through the SPDR Long Dollar Gold Trust (NYSEArca: GLDW). The dollar-hedged gold ETF may help investors gain exposure to gold bullion price movements and limit the negative effects of potential market volatility, without worrying about a stronger U.S. dollar.