Hedge Funds Are Exiting Gold, Should You?
Gold is a limited commodity that retains consumer�s purchasing power even under inflationary economies. The advantages are that gold is not at the mercy of government policy, so it cannot be easily issued or mined. Additionally, it is used to hedge, so it is a currency hedge an inflation hedge and a most importantly, a diversification tool in your portfolio.
Concerns about the Federal Reserve raising the interest rates, made hedge fund managers cut their net-long wagers for a sixth week, according to government data.
Last week, investors sold 18.9 metric tons of bullion that were held in exchange-traded products. This was the biggest reduction since November 2014. According to the U.S. Commodity Futures Trading Commission, the net-long position in gold declined by 26% to 64,925 futures and options in the week ended March 10.
An ETF is a special type of fund that invests in a portfolio of stocks or bonds. The aim is to mimic the performance of a specified index. As well as the shares, they are traded in the secondary market at any time (market hours) and investors can sell short. The advantages of this investment vehicle are that they provide an efficient method of diversification because investors gain exposure to an index or a particular sector. Secondly, investors know the composition of the fund at all times. Moreover, as they are a passively managed fund, they have good operating expense ratios.
The SPDR Gold Shares
The SPDR Gold Shares (GLD) is an investment fund incorporated in the U.S. and is managed by a team at SSgA Funds Management Inc. This fund is one of 126 SSgA Funds Management Inc. exchange-traded funds launched since 12/16/1998. The investment objective of the Trust is to reflect the performance of the price of gold bullion, (less the trust�s expenses). It is the largest and most liquid physically backed gold offering.
As we can appreciate in the next chart, on a year to date basis, the ETF has dropped by 2.38%.
http://www.gurufocus.com/chart/GLD"> src="https://gurufocus_charts.s3.amazonaws.com/1426513191395.png" />
In the next table we can see the return for others periods of time.
Period | Return |
1 month | -6.02% |
3 month | -5.56% |
1 year | -16.13% |
Final Comment
In a world where inflation has been almost inexistent in most countries, there is low demand for gold as a safe-haven asset and inflationary hedge. We continue believe the U.S. economy is showing signs of improvement and the dollar is getting stronger and we expect for the upcoming future that production costs may still be raising.
Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.
This article first appeared on GuruFocus.
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