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Gold ETF Rally Unstoppable after 2 Beaming Quarters

Amid global growth slowdown, geopolitical turmoil and high broad-based volatility in the markets ever since the start of the year, gold has emerged as a winner among other asset classes. The yellow metal has recorded its biggest two-quarter percentage increase since 2007 (read: 1H ETF Asset Report: Gold Glows; Equities Fade).

In fact, gold touched a new two-year high of $1,373 per ounce on July 6, 2016. As per US ETF Flash Flows report from State Street Global Advisors, gold ETFs attracted over $14 billion in the first half of 2016, marking the highest inflows in the first six months ever.

Helping gold’s cause further was the Brexit vote held late last month, which drove investors to safe-haven assets. Gold ETFs recorded inflows of almost $800 million on the day U.K. took the world by surprise by voting in favor of leaving the EU (read: Gold ETFs Shine on Brexit Woes).

Gold bullion ETF SPDR Gold Shares GLD is up almost 28% so far this year (as of July 7, 2016). The path ahead is likely to be smooth as the jump in gold prices this year was also supported by plunging interest rates on a global scale. Earlier this month, 10-year note yields dropped to its lowest level in the last three years.

Meanwhile, the 10-year UK gilt also touched a record low after Bank of England’s Financial Stability Report signaled a challenging outlook and service sector data turned out to be lackluster. In fact, due to the flight to safety, yields are at record low levels across the globe. Germany, France, Switzerland and Australia have all seen new lows in yields for their 10-year benchmarks this month. Japan remains in the negative zone (read: Global Treasury Yields Dive: Play These Sector ETFs).

With the Fed not expected to raise interest rates in the near term and volatility most likely to rule the markets in the coming days, gold’s rally will in all likelihood continue (read: Gold ETFs to Continue Their Bull Run: Here's Why?).

How to Play?

Given the flight to safety and intense buying pressure on gold, investors have a long list of options in the ETF world to tap the metal’s rally.

SPDR Gold Trust ETF:  This is the largest and most popular ETF in the gold space with AUM of $42.8 billion and average daily volume of around 11.8 million shares. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank. Expense ratio comes in at 0.40% (read:Britain Exits EU: Are Gold ETFs the Safest Haven Now?).

iShares Gold Trust IAU: This ETF offers exposure to the day-to-day movement of the price of gold bullion and is backed by physical gold under the custody of JP Morgan Chase Bank in London. It has AUM of $9.4 billion and trades in solid volume of more than 8.5 million shares a day on average. The ETF charges 25 bps in annual fees.

ETFS Physical Swiss Gold Shares SGOL: This product also tracks the price of gold bullion and is backed by physical bullion under the custody of JPMorgan Chase Bank. It has amassed $1.1 billion in its asset base and trades in lower volume of 43,000 shares per day. The product has an expense ratio of 0.39%.

Some Leveraged ETFs

Let’s look at certain leveraged ETFs to create a leveraged long/short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short span of time provided the trend continues. However, these funds run the risk of huge losses compared to traditional funds in fluctuating or erratic markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months). Despite this drawback, investors are seen to jump into these products for quick returns (see: all Leveraged Equity ETFs here).

ProShares Ultra Gold ETF UGL:  This fund seeks to deliver twice (2x or 200%) the return of the daily performance of gold bullion in U.S. dollars. It charges 95 bps in fees a year and has amassed $110.1 million in its asset base. Volume is light at about 51,000 shares per day.

VelocityShares 3x Long Gold ETN UGLD: This product provides three times (3x or 300%) exposure to the daily performance of the S&P GSCI Gold Index Excess Return plus returns from U.S. T-bills net of fees and expenses. The ETN has been able to manage an asset base of $104.1 million while charging a higher fee of 1.35% annually. The note trades in a volume of over 725,000 shares a day.

Daily Gold Miners Bull 3x shares NUGT: NUGT seeks to deliver thrice the daily performance of the NYSE Arca Gold Miners Index, which consists of firms that operate globally in both developed and emerging markets, and are involved primarily in the exploration and production of gold. It is rich in AUM of $1.8 billion and sees solid average trading volume of 8.5 million shares. Expense ratio comes in at 0.94% (read: Go Beyond Bullion; Buy These Mining ETFs).

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SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
ETFS-GOLD TRUST (SGOL): ETF Research Reports
PRO-ULT GOLD (UGL): ETF Research Reports
DIR-D GM BL 3X (NUGT): ETF Research Reports
VEL-3X LNG GOLD (UGLD): ETF Research Reports
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