Gold ETFs to Shine Bright: Here's Why
Gold has been the hottest commodity this year buoyed by investors’ flight to safety. The is especially true against the backdrop of global economic growth concerns triggered by the coronavirus outbreak and the collapse in oil price that has raised the appeal for the yellow metal as a great store of value and hedge against market turmoil.
Below, we have highlighted some reasons to be bullish on gold at least for the near term:
Growth Concerns
The bouts of recent data reflect the heavy toll that coronavirus has taken on economic activities. America has lost all the 22 million jobs created since the Great Recession in just four weeks. Retail sales suffered their worst monthly decline on record while industrial production saw the steepest decline since early 1946. The manufacturing sector also contracted in March with activity hitting its lowest level since 2009 while consumer confidence dropped to a near three-year low last month (read: Gold ETFs Shining Bright Amid Coronavirus Crisis).
Meanwhile, the housing market, which was firing on all cylinders before the lockdown, started to take a beating. New home construction declined the most in March since 1984 and homebuilder confidence plunged the most in 30 years of record-keeping in April, according to the monthly National Association of Home Builders/Wells Fargo Housing Market Index.
Oil Price Crash
Oil price has plummeted by around 80% this year as the coronavirus pandemic brought the economy to a standstill, leading to an unprecedent fall in demand and rise in crude stockpiles. The International Energy Agency warned of lowest oil demand in 25 years. It expects oil demand in April to fall below last year’s average by 29 million barrels per day to levels not seen since 1995 (read: 5 ETF Areas Set to Soar on Historic Oil Price Collapse).
Massive Stimulus
Governments and central banks around the world have pumped trillions of dollars into the financial markets to prop up economies brought to a standstill by the COVID-19 pandemic. Leaders of the Group of 20 major economies have pledged to inject more than $5 trillion in fiscal spending into the global economy to ease the economic impact of coronavirus.
Bullish Analyst Forecast
Though the shine in gold dimmed lately on signs of stabilization in the coronavirus outbreak and talks of reopening of the economy, the positive trend continued to build up for a much longer period than expected. With an official recession looming, monetary authorities poised to buy record amounts of financial assets and double the sizes of their balance sheets, BofA Global Research has been super bullish on gold. The analyst raised its 18-month price target for gold to $3,000 per ounce from $2,000. The new target is up more than 50% higher than a nine-year old record at around $1,921 per ounce.
The analyst warned that the Federal Reserve’s balance sheet as a percentage of GDP could rise 20-40% this year. Per the latest report, the central bank’s balance sheet hit a record high of $6.42 trillion, up more than 50% from levels reported during the first week of March. BofA Global Research stated that the fiscal policies will place outsize pressure on currencies, driving massive interest in gold and its scarcity.
ETFs to Tap
Given this, investors could tap the bullish trend in bullion price with the help of ETFs. We have highlighted five gold ETFs that could be excellent plays for investors, who believe that gold will continue to move higher amid rocky fundamentals (see: all the Precious Metals ETFs here).
SPDR Gold Trust ETF GLD
This is the largest and most-popular ETF in the gold space with AUM of $55.9 billion and average daily volume of around 11.1 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 USA. Expense ratio comes in at 0.40%. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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 $22.4 billion and trades in solid volume of 23 million shares a day on average. The ETF charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR Gold MiniShares Trust GLDM
This product seeks to reflect the performance of the price of gold bullion. Being a low-cost product with expense ratio of just 0.18%, GLDM has gathered $2 billion in AUM and trades in solid average daily volume of 2 million shares. It has a Zacks ETF Rank #3 (read: After a Moderate Q1, What Lies Ahead for Gold ETFs in Q2?).
Aberdeen Standard Physical Swiss Gold Shares ETF 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 $1.7 billion in its asset base and trades in a solid volume of 1.2 million shares per day. The product has an expense ratio of 0.17% and a Zacks ETF Rank #3 with a Medium risk outlook.
GraniteShares Gold Trust BAR
With AUM of $846.2 million and expense ratio of 0.17%, the fund tracks the performance of gold price. It trades in a moderate volume of 341,000 shares per day on average and has a Zacks ETF Rank #3.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
Aberdeen Standard Physical Gold Shares ETF (SGOL): ETF Research Reports
GraniteShares Gold Trust (BAR): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
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