Gold ETFs Dip to 6-Month Low: Time to Buy?

June 30, 2018

New York (June 30)  A stronger dollar and strong economic fundamentals are taking a toll on gold prices . On Jun 26, U.S. gold futures for August lost 0.5%, trading at $1262.4 per ounce, its lowest in the last six months.

Gold is highly sensitive to U.S. interest rates and continued rate hike has weighed on the metal. As the Fed is expected to hike rates, the dollar might strengthen further and bond yields are expected to shoot up (read: What Lies Ahead for Precious Metal ETFs? ).

Moreover the Fed chairman, Jerome Powell has suggested that gradual rate hikes need to continue to meet the inflation target and employment objectives.

Stronger Dollar & Strong Economy: A Bane

The U.S. economy has been solid with 2.2% growth in the first quarter. Trump's $1.5 trillion tax-cut to bolster growth has improved after-tax corporate profits by 8.7% in Q1 as compared to the last quarter of 2017. An improving employment scenario, with 223,000 additional jobs created in May and moderate wage growth of 0.9% in the first quarter, has led to higher domestic consumption of the U.S. further strengthening its position (read: What Lies Ahead for Gold ETFs ?).

The U.S. dollar index, analyzing the greenback's strength against six major currencies, rose 0.34% to a one-year high of 94.68 on Jun 26. This has made dollar-priced gold expensive for non-U.S. investors.

"Only a weaker dollar would bring the shine back for gold. The dollar index's strength is mainly powered by hopes for higher rates and rising yields and there seems to be no change in this any time soon," has said in a report. 

Tariff and EM Downfall: A Boon

A looming trade war could be beneficial for gold in the long term. As both China and the United States have announced tariffs, global stock markets remain volatile, with Asian markets being the worst hit. Emerging markets are struggling to shore up their currency against a rising dollar. Gold is a safe haven for investments during this turmoil.

In particular, the sliding Chinese currency has revived fears of the devaluation of yuan, and analysts fear that the trade war could turn into a currency war in the near future. This could raise demand for the yellow metal, pushing its price higher. 

Given this, gold ETFs, which have been hurt by the strong dollar, could rebound on uncertain market conditions. Thus, we have highlighted the popular plays for investors seeking to tap the beaten down prices. 

SPDR Gold Trust ( GLD )

The fund tracks the performance of the price of gold bullion. It has an expense ratio of 0.40%. GLD is the most popular ETF with AUM of $33.4 billion and trades in an average daily volume of 7.37 million shares. The fund has Zacks ETF Rank #3 with a Medium risk outlook.

iShares Gold Trust ( IAU )

The fund tracks the daily price movement of the gold bullion and can be used to hedge against inflation.

It has gathered a massive asset base of $11 billion and has daily traded volume of 13 million shares. It has expense ratio of 0.25% and a Zacks ETF Rank #3 with a Medium risk outlook.

ETFS Physical Swiss Gold Shares ( SGOL )

The fund tracks the performance of the price of gold bullion and benefits those who are looking to invest in a cost-effective way of investing in gold.

It has an asset base of $913.3 million and daily traded volume of 73,440. The fund charges an annual fee of 39 basis points and has Zacks ETF Rank #3 with a Medium risk outlook (read: Why Gold Mining ETFs Are Rallying ?).

GraniteShares Gold Trust ( BAR )

The fund tracks the performance of the price of gold. It manages assets of $253 million under its portfolio and charges an annual fee of 20 basis points. BAR trades an average daily volume of 26,140 shares. The fund has a Zacks ETF Rank #3.

Van Eck Merk Gold Trust ( OUNZ )

The fund allows investors to buy gold through an exchange traded product with the option to take physical delivery of gold.

It has assets worth $144.1 million with an average daily trade volume of 59,200 shares. OUNZ charges 40 basis points fee annually and has a Zacks ETF Rank #3 with a Medium risk outlook.


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