Gold Bugs Finding Solace in ETF Using Euro to Fund Purchases

Frankfurt (Mar 20)  The euro is adding some much needed glitter to gold, at least in one exchange-traded fund.

The $13.8 million AdvisorShares Gartman Gold/Euro ETF has gained 11 percent, this year’s best commodity-focused U.S. fund, amid the currency’s tumble to a 12-year low. The fund is able to turn a profit amid the slump in the metal because the gold is purchased in euros, giving a boost to U.S. investors once the exchange rate is taken into account.

“It appeals to investors that want a gold play that isn’t being hammered by the dollar,” Matt Hougan, president of ETF.com, a San Francisco-based research firm, said in a telephone interview on Tuesday. “It’s attracted new attention and it’s given people the idea that gold is going up.”

The euro’s 12 percent slump since December has helped the AdvisorShares fund beat all 113 other unleveraged American ETFs that focus on commodities amid the plunge in the yellow metal.

Investment products that offset or capitalize on currency moves are becoming more popular amid a rise in foreign-exchange volatility as global central-bank policy diverges. WisdomTree Investments Inc.’s hedged European equity fund has attracted more inflows than any other U.S. ETF this year.

Gold, a traditional hedge against inflation, has slumped for the last two years in dollar terms amid subdued consumer prices and the Federal Reserve’s move toward tighter monetary policy. With the European Central Bank starting its unprecedented program of stimulus this month, inflation expectations are rising and the euro is falling lower, giving gold a new lease of life.

Unhedged Funds

ETF holdings of gold have inched higher after declining to the lowest since 2009 in January. The metal fell 1 percent against the U.S. currency this year to $1,173.34 per ounce.

Versus the euro, it’s a different story. Gold added about 11 percent this year as the 19-nation currency slid against the greenback to its lowest since January 2003.

AdvisorShares’ gold fund, which has attracted about $11 million of new cash this year, remains a minnow compared to others in the market. SPDR Gold Shares, for example, has grown to almost $28 billion of assets since it was established more than a decade ago.

While AdvisorShares’ fund has gained about 14 percent since its inception in February 2014, SPDR Gold has lost about 10 percent over the same period. ETF.com’s Hougan predicts the AdvisorShares fund will grow to “hundreds of millions” of dollars in assets by year-end.

AdvisorShares’ yen and sterling gold funds have however been less successful that its euro offering. While the company’s yen fund has gained 6.3 percent since inception, it is down 0.5 percent this year. Its sterling gold ETF was liquidated in January.

For gold bugs, “holding it in dollars over the past few years has proven to not be a very safe move as far as performance goes,” said Chip Runyon, director of operations and business development at The Gartman Letter LC, which helped devise the euro ETF’s strategy. “You might get more bang by having it hedged in another currency, especially in a rising dollar environment.”

Source: Bloomberg