ETF Trends CEO Tom Lydon discussed the SPDR Gold Shares (GLD) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
GLD is one of the most popular ETFs in the world, offering exposure to an asset class that has become increasingly important to the asset allocation process in recent years. GLD can be used in several different ways; some may establish short term positions as a way of hedging against equity market volatility, dollar weakness, or inflation. Others may wish to include gold exposure as part of a long-term investment strategy. GLD is a relatively straightforward product; the underlying assets consist of gold bullion stored in secure vaults. As such, the price of this ETF can be expected to move in lockstep with spot gold prices. The physically-backed nature of this product eliminates any of the uncertainties introduced through futures-based strategies, though investors also have the option to approach this precious metal through futures-based funds such as UBG and DGL.
Gold has been a popular hedge against ongoing risks associated with the coronavirus pandemic and a way to protect purchasing power in light of aggressive monetary easing. There have been $1.8 billion net inflows for the week ending on May 18. That makes GLD the second most popular ETF play of 2020, with $11.8 billion net inflows year-to-date.
In general, there has been heavy gold interest as of April. Globally, gold-backed ETFs (gold ETFs) added 170 tonnes, with net inflows of $9.3 billion (+5.1%) in April. That boosts holdings to a new all-time high of 3,355 tonnes in April. Assets under management also reached a new record high of $184 billion, as gold in USD moved higher by 5.8%.
Additionally, inflows have been strong and consistent in recent months. Strong April inflows followed high March numbers. Inflows for U.S.-listed ETFs were noteworthy in March, as a net $176 million moved into the space, despite stock markets plummeting by an amount not seen since 2008.
The inflows imply that investors were reluctant to sell their assets despite massive volatility in markets and abysmal economic headlines. Moreover, the World Gold Council (WGC) highlighted gold-backed ETFs that attracted inflows of over 298 tons of the precious metal in the first three months of the year. The WGC also added that ETF inflows for the first quarter surged more than 300% year-over-year.
Gold billion is a traditional safe-guard of wealth and purchasing power in times of high inflation. The loose monetary policies should devalue the currency. Lower interest rates are helping gold’s cause. Depressed interest rates diminish the opportunity cost of holding non-yield-generating assets, like gold. That in mind, gold has repeatedly proven itself as an effective hedge during complex and challenging market conditions, including the global financial crisis and the current COVID-19 pandemic.
Will this lead to hedge rising risks, again? Well, there is the ongoing economic weakness from the Coronavirus outbreak and business shutdowns. Plus, another U.S.-China trade war is brewing, as the Trump administration halted semiconductor sales to Chinese telecom giant Huawei. Also, heading toward a presidential election season soon means political risk.
With all of that being said, having SPDR Gold Shares does show a level of reliability. This is a physically-backed gold ETF. HSBC Bank plc holds the Gold in London vaults. Each share of GLD represents a portion of its physical gold bullion holdings. GLD holds about 1,114 tonnes of physical gold. Were things to go south, this is a good area to be.
Listen to the full podcast episode on GLD ETF:
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