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Gold Regains Sheen: 5 ETFs to Tap

Gold has been showing strength this week, especially after the higher inflation data, which has raised the appeal of gold as a hedge against inflation. The consumer price index rose 6.2% year over year in October, the highest since December 1990 and exceeded the 5.4% year-over-year rise in September.

The yellow metal is on track for its biggest weekly jump in six months, climbing 2.3% so far. With gold prices rising, ETFs that are directly linked to the spot gold price or futures have also rallied. SPDR Gold MiniShares Trust GLDM, iShares Gold Trust IAU, Aberdeen Standard Physical Swiss Gold Shares ETF SGOL, VanEck Merk Gold Trust OUNZ and SPDR Gold Trust ETF GLD all gained 4.5% in a week.

The solid trend is likely to continue at least for some months, given that inflationary pressure will continue to drive gold prices higher. With the economy recovering from the pandemic lows with a rise in vaccinations among Americans, demand is surging but supply is limited, leading to a spike in inflation (read: TIPS ETFs to Track as Inflation Soars the Most in 3 Decades).

There have been shortages on the supply side of the U.S. economy, given the lack of commodities, labor shortages and other inputs to produce the goods and services demanded by other businesses and American consumers. Additionally, huge infrastructure and stimulus packages in the United States have also been viewed as a key contributing factor to the inflation that will act as a driving factor for gold price.

However, the sharp rise in inflation has prompted bets that the Federal Reserve will raise interest rates sooner than expected to combat surging consumer prices. According to the CME FedWatch tool, traders consider a 47.2% probability that the Fed will raise interest rates in June 2022, a jump from 27% probability a month ago. Higher interest rates might dull the appeal for the yellow metal as it does not pay any interest like fixed-income assets.

The central bank is expected to begin tapering bond purchases “later this month.” It will reduce buying by $15 billion a month, putting it on track to end the quantitative easing by the middle of next year. This will result in a sharp appreciation of the U.S. dollar against the basket of major currencies, which might hurt the performance of gold.  

Given the drive for inflation hedge, gold price is expected to increase further. As such, investors should tap the rally with the ETFs before it’s too late. Here’s a detailed discussion on the five ETFs mentioned earlier:

GLDM

SPDR Gold MiniShares Trust seeks to reflect the performance of the price of gold bullion. It is a slightly modified alternative to the State Street behemoth gold fund SPDR Gold Trust ETF and holds roughly 1/10th as much gold per share.  

SPDR Gold MiniShares Trust is one of the low-cost choices in the U.S. listed physically gold-backed ETF space, charging investors 18 bps in annual fees. It has $4.3 billion in AUM and trades in a solid average daily volume of 2.5 million shares. SPDR Gold MiniShares Trust has a Zacks ETF Rank #3 (read: ETF Areas to Consider to Combat Rising Inflation Concerns).

IAU

iShares Gold Trust offers exposure to the day-to-day movement of the price of gold bullion. It is backed by physical gold under the custody of JP Morgan Chase Bank in London.

Though iShares Gold Trust charges 7 bps higher than GLDM, it is more liquid and popular, trading in average daily volumes of 9.1 million shares. The product has AUM of $29.1 billion and has a Zacks ETF Rank #3 with a Medium risk outlook.

SGOL

Aberdeen Standard Physical Swiss Gold Shares ETF also tracks the price of gold bullion. The Trust holds allocated physical gold bullion bars stored in secure vaults in Zurich, Switzerland and London, United Kingdom.

Aberdeen Standard Physical Swiss Gold Shares ETF has amassed $2.5 billion in its asset base and trades in a solid volume of 922,000 shares per day. It is also one of the lowest-cost choices in the space with an expense ratio of 0.17%. Aberdeen Standard Physical Swiss Gold Shares ETF has a Zacks ETF Rank #3 with a Medium risk outlook (read: Will Gold Get Its Glitter Back in Q4? ETFs in Focus).

OUNZ

VanEck Merk Gold Trust seeks to provide investors with a convenient and cost-efficient way to buy and hold gold through an exchange-traded product with the option to take physical delivery of gold if and when desired. It holds gold bullion in the form of allocated London Bars. VanEck Merk Gold Trust is the only gold ETF with a patented delivery process providing investors with the option to request delivery on any business day.

The fund charges 25 bps in fees per year. VanEck Merk Gold Trust is relatively unpopular and an illiquid option compared to others in the space with AUM of $591.3 million and an average daily volume of 299,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.

GLD

SPDR Gold Trust ETF is the first U.S. traded gold ETF and the first U.S.-listed ETF backed by a physical asset. It provides direct exposure to the gold bullion. SPDR Gold Trust ETF tracks almost 100% of the physical price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. Each share represents about 1/10th of an ounce of gold at current prices.

SPDR Gold Trust ETF is the largest and most popular ETF in the gold space with AUM of $57.3 billion and an average daily volume of about 6.6 million shares a day. GLD charges 40 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.


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SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Gold Trust (IAU): ETF Research Reports
 
Aberdeen Standard Physical Gold Shares ETF (SGOL): ETF Research Reports
 
VanEck Merk Gold Trust (OUNZ): ETF Research Reports
 
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
 
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Zacks Investment Research