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Gold ETFs Glitter Amid Second Coronavirus Wave Concerns

Sweta Jaiswal, FRM

Investors continue to be bogged down by concerns over the second wave of coronavirus infections as the total number of cases continue to surge globally. Per the Johns Hopkins University, more than 8.9 million of coronavirus cases have been reported globally along with a death toll of more than 467,000. In fact, on Jun 21, WHO reported the single-largest daily jump in worldwide coronavirus cases, with the total surging by a significant 183,020 in 24 hours (per a CNN report).

Notably, China and Germany have taken the initiative to reimpose some lockdown measures in areas where the emergence of new cases is being observed. Meanwhile, states like Florida, Carolinas, Texas and Arizona in the United States are seeing increasing number of hospitalizations every day. Also, going by a CNN report, 10 states witnessed their highest daily number of cases last week, whereas around two dozen states have seen a surge in cases in comparison to the week ending Jun 12.

Given the current scenario, investors’ appetite for risk-free or defensive investments is again building up and as a result demand for gold investments is surging. The yellow metal has already gained 15% so far this year and is moving toward the highest since 2012. On Jun 19, it was observed that investors increased their holdings in gold-backed exchange-traded funds by almost 30 tons, including around 23.1 tons invested into SPDR Gold Shares (GLD), per a Bloomberg article.

Other Factors Behind Gold’s Shine

Investment in yellow metal is also being backed by popular names like the Goldman Sachs GS and JPMorgan Chase JPM. The former is predicting that the gold bullion can touch the record $2,000 an ounce level (per a Bloomberg article). Meanwhile, JPMorgan is recommending gold investments as the metal is most leveraged to a low real-yield environment. In this regard, Sean MacLean, research strategist at Pepperstone Ltd., has said that "markets have been optimistic lately, looking through poor data and newsflow and betting on a strong recovery, but the one thing markets wouldn't be able to ignore is economies stalling again and the threat there is a second round of lockdowns," per a Bloomberg article.

In the meantime, China’s releasing of details on the proposed national security law can result in heightened tensions with the United States and increasing uncertainty in Hong Kong. As confirmed by China, the proposed national security law will enable Beijing to override Hong Kong's legal system, per a Bloomberg article. The whole situation is again hurting the risk-on sentiments of investors and making investments in yellow-metal more attractive.

Going on, Fed Chair Jerome Powell maintained a dovish stance in the FOMC meeting, concluded on Jun 10. He informed that there is no expectation of a rate hike through 2022. The Fed has pledged to continue pumping in stimulus to support the economy and strengthen it. The central bank has also reiterated that the Fed funds rate would likely stay at the 0-0.25% range and confirmed continued bond-buying. The central bank forecasts the unemployment rate to fall to 9.3% by the end of this year. Though the figure is down from May’s 13.3%, it will be noticeably above 3.5% recorded in February — a near 50-year low.

The unemployment rate will later likely improve to 6.5% in 2021. The U.S. GDP is projected to shrink 6.5% this year before rebounding 5% next year and 3.5% in 2022. Inflation also has been forecast to remain below the Fed’s 2% target through 2022.

Also, some analysts believe the Federal Reserve’s measures to provide support to the ailing economy seem to be supportive of investments in gold and treasuries. Also, interest-rate cuts are lowering the opportunity costs of investing in non-yielding bullion.

Gold ETFs to Shine

Yellow metal investments have been popular this year due to the coronavirus outbreak. Notably, the global stash of gold in ETFs touched the highest level in seven years in the middle of the first quarter of 2020.

Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Trust BAR are some of the popular ETFs. These funds carry a Zacks ETF Rank #3 (Hold). Below we have discussed these in detail:

GLD

This is the largest and most popular ETF in the gold space, with AUM of $64.65 billion and average daily volume of 12.7 million shares. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Get Ready for a Gold Rush: ETFs in Focus).

IAU

This ETF offers exposure to the day-to-day movement of the price of gold bullion. It has AUM of $25.13 billion and trades in a solid volume of 25.1 million shares a day, on average. At launch, each share of this ETF represented about 1/100th of an ounce of gold. The ETF charges 25 basis points (bps) in annual fees (read: ETF Strategies to Brave the Second Wave of Coronavirus Infections).

GLDM

This product seeks to reflect the performance of the price of gold bullion less GLDM’s expenses. Being one of the low-cost products with an expense ratio of 0.18%, GLDM has accumulated $2.37 billion in AUM and trades in average daily volume of 2.6 million shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold.

BAR

With AUM of $987.2 million and an expense ratio of 0.17%, the fund tracks the performance of gold price less trust expenses. It trades in a moderate volume of 423,000 shares per day, on average. At launch, each share of this ETF represented about 1/100th of an ounce of gold (see: all the Precious Metal ETFs here).

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JPMorgan Chase Co. (JPM) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Gold Trust (IAU): ETF Research Reports
 
GraniteShares Gold Trust (BAR): ETF Research Reports
 
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
 
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