Although gold lost it sheen with the start of the fourth quarter on renewed risk-on sentiments, the outlook seems bright heading into the New Year. This is especially true given the looming uncertainty over the U.S.-China trade deal and fresh tariff threats from Trump. Notably, the precious metal is up more than 13% so far this year.
We have highlighted some solid reasons why gold will remain strong next year.
Trade & Tariff
With no imminent phase one trade deal, the prospect of the imposition of more tariff on Chinese goods from Dec 15 increases. Additionally, Trump is planning to restore tariffs on steel and aluminum imports from Brazil and Argentina in retaliation to currency devaluation. The administration also proposed tariffs of up to 100% on $2.4 billion worth of French products, including sparkling wine, cheese and other goods, to penalize France for a new digital services tax that has hit U.S. technology companies (read: Safe-Haven ETFs Back in Demand on Trade Gyrations).
The election in November, Brexit issues and geopolitical tension will result in volatility in the stock market, thereby leading to strong demand for the yellow metal.
Apart from trade tensions, the latest data signals that U.S. economic growth is cooling down, making investors jittery. The Institute for Supply Management data showed that the U.S. manufacturing sector contracted for the fourth straight month in November as new factory orders dropped to their lowest level after 2012. Additionally, U.S. construction spending fell unexpectedly in October as investment in private projects tumbled to its lowest level in three years.
The International Monetary Fund (IMF) recently cut its global growth forecast from 3.2% to 3% — the lowest growth pace since the 2008-2009 financial crisis for this year — citing an increasing fallout from global trade friction. Against this backdrop, gold is considered a great store of value and hedge against market turmoil (read: Is it Time to Buy Gold ETFs?).
The central banks across the globe have been on a monetary easing spree that is boosting demand for the yellow metal. The Fed has slashed interest rates three times this year and the European Central Bank also cut interest rates in a package of easing measures. Lower rates will continue to weigh on the dollar against the basket of currencies, raising the metal’s attractiveness as it does not pay interest like fixed-income assets.
ETFs to Consider
In view of the reasons discussed above, investors should buy gold at beaten down prices. We highlight six popular gold ETFs that could be excellent plays for investors who believe that bullion will continue to move higher in 2020. All these funds have a Zacks ETF Rank #3 (Hold).
SPDR Gold Trust ETF GLD
This is the largest and most-popular ETF in the gold space with AUM of $42.1 billion and average daily volume of around 10.2 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%.
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 $17 billion and trades in solid volume of 20.9 million shares a day on average. The ETF charges 25 bps in annual fees (read: Gold ETFs: Leader or Laggard?).
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 $1.1 billion in its asset base and trades in a lower volume of 850,000 shares per day. The product has an expense ratio of 0.17%.
SPDR Gold MiniShares Trust GLDM
This product seeks to reflect the performance of the price of gold bullion. Being one of the low-cost products with expense ratio of 0.18%, GLDM has amassed $1.1 billion in AUM and trades in solid average daily volume of 1.2 million shares.
GraniteShares Gold Trust BAR
With AUM of $574 million and expense ratio of 0.17%, the fund tracks the performance of gold price. It trades in moderate volume of 182,000 shares per day on average (see: all the Precious Metal ETFs here).
VanEck Merk Gold Trust OUNZ
This product seeks to provide investors with a convenient and cost-efficient way to buy and hold gold through an exchange-traded product with the option to take physical delivery of gold. It charges 40 bps in fees per year and has AUM of $180 million. OUNZ trades in average daily volume of 52,000 shares.
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SPDR Gold Shares (GLD): ETF Research Reports
VanEck Merk Gold Trust (OUNZ): ETF Research Reports
Aberdeen Standard Physical Gold Shares ETF (SGOL): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
GraniteShares Gold Trust (BAR): ETF Research Reports
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