Owing to the soaring dollar, which is the byproduct of rising interest rates, gold isn’t the perfect asset class this year.
However, the newly minted Franklin Responsibly Sourced Gold ETF (NYSE Arca: FGLD) could still prove to be one of 2022’s better-timed rookie exchange traded funds because gold is outperforming other asset classes, confirming that it retains credibility as a shelter-from-the-storm destination.
“Gold, along with commodities and cash, was one of the few places where investors could take shelter. Gold has mostly stayed in a trading range in recent months (priced at about $1,737 per ounce as of this writing), but still ranks as one of the better-performing asset classes in this year’s market rout,” wrote Morningstar analyst Amy Arnott. “While gold has proved its value as a safe haven, though, its ability to improve portfolio performance over longer periods is less convincing.”
Historically, one of the benefits of owning gold is that the yellow metal, along with other commodities, often displays reduced correlations to traditional asset classes such as stocks and bonds. Said another way, FGLD, which debuted late last month, may have come to market at just the right time because investors are contending with dismal returns from both equities and fixed income assets this year.
Additionally, FGLD has an element of socially responsible investing to it because the rookie ETF only holds responsibly sourced bullion.
FGLD’s gold holdings are “sourced from LBMA accredited refiners that are required to demonstrate their efforts to respect the environment and combat money laundering, terrorist financing and human rights abuses in accordance with the LBMA’s Responsible Gold Guidance,” according to Franklin Templeton.
There’s more to the gold thesis that could make FGLD an attractive idea for investors seeking commodities exposure today.
“Over longer periods, gold has consistently excelled during bear markets and periods of unusually high market volatility. Gold has posted significantly better returns during previous market drawdowns. While its performance during the novel coronavirus crisis was a partial exception, gold has more often notched positive total returns during periods of deep losses in the equity market,” added Arnott.
Gold is often seen as a buffer against broader market volatility, and timing when that volatility will rise and fall is difficult, meaning some investors are best served by buying and holding an asset like FGLD. Fortunately, FGLD makes that easier with an expense of just 0.15%, which is among the lowest in the gold ETF category.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.