What Lies Ahead for Gold ETFs?

Gold ETFs have been in the news lately. Although on one hand geopolitical risks have increased the appeal of some of these funds as safe-haven investments, a rising greenback and fears of rising rates are weighing on their performance.

Factors Driving Prices

Bond yields have been on an upward trend lately and 10-year yields crossed 2.85% recently, as investors grow optimistic about the economy and bet on growing inflation. Stronger wage growth added to inflation fears. Per latest data released by the Labor Department last week, wages grew 2.9% year over year in January compared with 2.6% in the prior month, the highest pace since April 2009.

Also, non-farm payrolls came in at 200,000 for January compared with economists’ forecast of 180,000. Unemployment rate remained steady at 4.1%. As a result, the greenback has been rallying and weighing on gold prices. PowerShares DB US Dollar Bullish ETF UUP is up around 1.4% in the past five days (read: Markets Bounce Back: Still It Is Time for Quality ETFs?).

Moving on to interest rates, the Fed is widely expected to hike interest rates multiple times this year to tame inflation, and markets are betting on the Fed to hike rates more than three times suggested by Fed earlier. Per the CME Fed Watch tool, there is a 71.9% chance of a 25 basis point rate hike in March (read: 6 Ways to Build a Rate-Proof Portfolio With ETFs).  

Hikes in interest rates lead to higher bond yields and dampen the demand for non-yielding gold. Per a Reuters article, citing a statement by Stephen Innes, head of trading APAC at OANDA, “The shifting Fed narrative that is gathering hawkish following could be the most significant thorn in the Gold Bulls side.”

For argument’s sake, the biggest gold ETF SPDR Gold Shares ETF (GLD) witnessed $506.1 million in outflows in the Feb 1-Feb 7 period, per etf.com data.

Let us now discuss a few ETFs focused on providing exposure to the space (see all Precious Metals ETFs here).

SPDR Gold Shares ETF GLD

This fund offers physical exposure to gold. It seeks to track the performance of the gold bullion and might turn out to be a cost-efficient way of gaining exposure to the commodity even after accounting for the fund’s expenses.

It has AUM of $36.0 billion and charges a fee of 40 basis points a year. It has returned 6.2% in a year. As such, GLD carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares Gold Trust ETF IAU

This ETF seeks to provide exposure to prices of the gold bullion and can be used as a means to attain portfolio diversification or achieve hedging targets.

It has AUM of $11.2 billion and charges a fee of 25 basis points a year. It has returned 6.3% in a year. As such, IAU carries a Zacks ETF Rank #3 with a Medium risk outlook.

ETFS Physical Swiss Gold Shares ETF SGOL

This fund aims to track the performance of the gold bullion before fees and expenses and is a convenient way of gaining exposure to the metal.

It has AUM of $1.1 billion and charges a fee of 39 basis points a year. It has returned 6.3% in a year. As such, SGOL carries a Zacks ETF Rank #3 with a Medium risk outlook.

Another way of gaining exposure to the metal is through ETFs investing in commodity futures. Let us discuss one such ETF.

PowerShares DB Gold Fund DGL

This fund is appropriate for those looking for a cost-efficient way of investing in commodity futures. However, since this fund invests in the futures markets, it is not deemed suitable for all investors owing to the highly speculative nature of the investments.

It has AUM of $193.5 million and is relatively expensive as it charges a fee of 75 basis points a year. It has returned 5.3% in a year. As such, DGL carries a Zacks ETF Rank #3 with a Medium risk outlook.

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ETFS-GOLD TRUST (SGOL): ETF Research Reports
 
GOLD (LONDON P (GLD): ETF Research Reports
 
ISHARS-GOLD TR (IAU): ETF Research Reports
 
PWRSH-DB US$ BU (UUP): ETF Research Reports
 
PWRSH-DB GOLD (DGL): ETF Research Reports
 
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