Gold prices fell $40 last week, but the recent tick lower could present an opportune buy-the-dip entry for investors in ETFs like the Invesco DB Gold (DGL).
While gold has been trying to stage a comeback as of late, it seems to have been stuck in a perpetual holding pattern the last few months. The $1,800 price ceiling seems to be the primary roadblock for gold prices to break, but some market experts think that it’s a temporary speed bump.
“I think the drivers for gold strength not only remain but actually have been strengthened,” said Diego Parrilla, manager of the Quadriga Igneo fund.
According to a Yahoo! Finance article, Parilla thinks that the general populace isn’t taking into account the risks of reflation when it comes to gold prices. The pump in the stock market caused by an injection of capital via governmental stimulus measures could be helping with overinflated valuations.
A market downturn could make gold an idea hedging opportunity, especially if runaway inflation were to occur. Consumer prices have already started ticking higher despite the Federal Reserve resisting the urge to pull the trigger on higher interest rates in a relatively low-rate environment.
“Central bank money printing isn’t really solving problems, it’s delaying the problem,” Parrilla says. “Gold will benefit purely from being a physical asset that you cannot print.”
A Long-Term Hold Opportunity
Rather than look at DGL as a short-term play on gold prices, prospective investors should look at its three-year track record. The fund is up over 30% for the last few years, making it an ideal long-term hold to complement a portfolio with run-of-the-mill assets in stocks and bonds.
DGL seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Gold Index Excess Return™ (DBIQ Opt Yield Gold Index ER or Index) plus the interest income from the fund’s holdings of primarily U.S. Treasury securities and money market income less the fund’s expenses. DGL is designed for investors who want a cost-effective and convenient way to invest in commodity futures.
The Index is a rules-based index composed of futures contracts on gold. The fund and the Index are re-balanced and reconstituted annually in November.