Investors Rediscover Gold ETFs

February 16th, 2016 by

gold-investigationThe blazing start for gold in 2016, combined with a dismal beginning for global stock markets, have investors rediscovering the role of gold ETFs and gold mining ETFs. Both sectors were beaten up last year as the price of gold declined, but are rising on the tide of gold’s 14% YTD gains.

For example the Market Vectors Gold Miners ETF (GDX) has been taking a licking for the last few years, but has ridden this gold rally to a 30% YTD gain. The largest physical gold ETF, the SPDR Gold Shares (GLD) has seen a 14% gain YTD.

Investors are piling into GDX and GLD in particular, as they are the largest ETFs in their sectors. GLD hit a new 52-week high last Thursday, iShares Gold Trust (IAU) is matching GLD’s performance, while the iShares MSCI Global Gold Miners fund (RING) is outpacing even GDX, with a 41% YTD return. One loser in GDX was Caxton Corporation, which sold its stake at the end of December, when prices were lowest. Even though this is technically old news, it was just revealed today, and had a bit of a psychological effect.

Volatility has returned to all market sectors, and gold is no exception. Gold ETF prices can fluctuate as day traders flock in and out, according to the gold price. Gold miner ETFs can offer a larger upside as prospects for miners improve, but also have a larger downside than straight gold ETFs in bad times.

With that said, the “fear trade” is showing signs of expanding into prudent portfolio diversification. From another banking system collapse in Europe, to a record number of bonds paying negative yields, to tightening credit leading to more bankruptcies, there are plenty of reasons to hold at least a small stake in gold.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product

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