Gold prices climbed more than 1% to hit their highest level in over six years on Monday, as investors ran for the exits from the stock market following a sixth day of losses, knocking markets down 6% from their highs in that time, due to a raging trade war with China and unsatisfying Federal Reserve attempts to placate President Trump and investors. For investors looking to put assets into gold, the question is does holding physical gold or holding gold ETFs make more sense? The answer: it depends on your goals.
Dave Nadig, managing director of ETF.com, explained on CNBC on Monday, “By the amount of gold in the vault, ETFs are about 80% below all time highs in terms of the amount they own, which was back in 2012. And we’ve got all sorts of new buying coming into the market to support this too. We’ve got central bank buying up 57%. We have all the short interest in the gold ETFs pretty much getting flushed out in July. So really all you’ve got is demand from folks who are looking for safe haven assets on days like today.”
Most poeple investing in gold ETFs think of the SPDR Gold Trust ETF (GLD). But investors can invest in physical gold bars also, using futures.
Kevin O’Leary of O’Shares ETFs, also appearing on CNBC, had a contrarian view.
“A lot of people don’t understand that holding the commodity itself has a lot of friction in terms of cost,” O’Leary said. “GLD itself for example is 40 basis points. But it’s the most high-volume liquid of all of them. So if you’re managing a large amount of money and you’re say I keep 5% waiting in gold. I know I’m always going to have 2 1/2%. So I bought the physical gold. I paid for the storage, which is way cheaper than paying the 40 bps on the trading vehicle I’m using to keep myself at five. Today for example I have to sell down to five. Gold has gone up a lot. I’m overweighted. I’m selling into the spread to get myself back to five. I can’t do the physical blocks yet. I can’t move them out on a trailer. I’m using GLD. But it ain’t cheap. It’s 40 bps.”
Still, for investors who are concerned about the expense ratio and cost of owning a gold ETF, an alternative is the GraniteShares Gold Trust (BAR).
“Really [it’s] exactly the same exposure. If you need the liquidity. If you’re moving millions of dollars around in 20 minutes, you need GLD like Kevin is talking about. If you’re planning on holding this position for years, you might as well save yourself those 20 or 30 basis points,” Nadig explained about investing in BAR.
So essentially there are pros and cons to owning gold or a gold ETF, explained Nadig.
“Do you want to be owning the companies that are effectively digging the stuff out of the ground? With all of the single stock risk, management risk, potential for labor problems, etc. or do you just want to own the metal? Pros and cons to both. Gold miners have been hit really hard in general in the last couple of years. They’ve had a bit of a comeback. Gold is gold. It just is what it is,” Nadig added.
Leveraged Gold ETF Plays
For investors looking for more rapid gains, and willing to bear the risks, here are the two leveraged 3X gold ETFs.
The Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) seeks daily investment results, before fees and expenses, of 300% of the performance of the NYSE Arca Gold Miners Index. There is no guarantee the fund will meet its stated investment objectives.
This leveraged ETF seeks a return that is 300% of the return of its benchmark index for a single day. The fund should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day. NUGT has an expense ratio of 1.23% and is currently up 85.37% as of June 27, 2019.
Meanwhile, the Direxion Daily Junior Gold Miners Index Bull 3X Shares (JNUG) seeks daily investment results, before fees and expenses, of 300% of the performance of the MVIS Global Junior Gold Miners Index. There is no guarantee this fund will meet its stated investment objectives.
This leveraged ETF seeks a return that is 300% of the return of its benchmark index for a single day. The fund should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day. JNUG has an expense ratio of 1.17% and is currently up 81.34% as of June 27, 2019.
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