One of the primary reasons major gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), are slumping this year is the stronger U.S. dollar. Commodities, such as gold, are denominated in dollars, meaning that when the greenback gains momentum, commodities can languish.
While the U.S. dollar strengthens, investors may still capture the potential upside in gold without worrying about an appreciating USD. Milling–Stanley pointed out that investors have been quick to seize the opportunity to add to holdings in the SPDR Long Dollar Gold Trust (NYSEArca: GLDW). The dollar-hedged gold ETF may help investors gain exposure to gold bullion price movements to limit the negative effects of potential market volatility, without worrying about an appreciating U.S. dollar.
GLDW, which debuted in January, tracks the Solactive GLD Long USD Gold Index. That benchmark “is designed to represent the daily performance of a long position in physical gold and a short position in a basket (“the FX Basket”) comprised of each of the Reference Currencies (i.e., a long USD exposure versus the FX Basket),” according to State Street Global Advisors.
Dealing With The Dollar
Many investors have noticed the benefits of incorporating gold exposure to a diversified portfolio, especially in periods of heightened volatility. However, gold has also been an attractive long-term asset.
“The concept of GLDW is essentially long US dollar, long gold. As such, investors who expect that the US dollar will weaken—over the short or long term—may wish to consider holding GLD the way they always have. Investors who expect that the dollar will strengthen now have access to GLDW as a means to potentially benefit from a rising US dollar,” according to SsgA.
Over the past 10 to 20 years, gold has also held up, supported by important structural changes in the market, like the economic expansion of emerging markets, increased use of gold as part of foreign reserves by central banks and the rising popularity of gold-backed ETFs.