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A Low-Cost, Physical Gold ETF with a Swiss Twist

This article was originally published on ETFTrends.com.

In 2018, rising interest rates that coincided with an extended bull run in U.S. equities for most of the year fueled a strong dollar, tamping down gains for gold. However, when investors got washed in a cycle of volatility that started in the fall and lasted through year's end, investors were quick to reconsider the precious metal as a safe haven, which helped exchange-traded funds (ETFs) like the  Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL) flourish.

SGOL gained 4 percent during a tumultuous December that saw U.S. equities finish their worst year in over a decade. The Dow fell 5.6 percent, while the S&P 500 lost 6.2 percent and the Nasdaq Composite fell 4 percent.

Meanwhile, SGOL effectively climbed past its 200-day moving average as a risk-off sentiment began to permeate the markets with a scramble for safe havens like gold ensuing.

A Physical Gold ETF with a Swiss Twist

With the latest Fedspeak sounding more dovish as it now projects two interest rate hikes in 2019 as opposed to three or more, this could be the trigger for gold to return to come back into the forefront, particularly as a safe-haven option in the wake of more volatility. While bonds are typically the default play when U.S. equities go awry, gold is a prime option for diversification as a safe alternative.

"I think moving forward the expectation is not as strong of a dollar," said Steven Dunn, Aberdeen Standard Investments Head of Exchange Traded Funds. "I think there is some concerns about volatility and does gold come back into play as that safe-haven type of asset."

Gold Has Been A Time-Tested Performer

Despite the headwinds of rising rates and a stronger dollar in 2018, some analysts feel that gold has weathered the storm and presents a prime buying opportunity in 2019. For the last 10 years, gold has proven to be a consistent performer, yielding 5.1 percent.

"During this period gold rose over 5% and outperformed US equities on the year by 2.8%," noted Maxwell Gold, Director of Investment Strategy at Aberdeen Standard Investments. "This recent bout of market volatility may likely have a lasting impression on investors who may seek a potential risk hedge in the form of gold and precious metals."

A Physical Gold ETF with a Swiss Twist

Swiss Storage Advantage

SGOL seeks to reflect the performance of the price of gold bullion minus the trust's expenses. The Shares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in gold.

An investment in physical gold requires expensive and sometimes complicated arrangements in connection with the assay, transportation, warehousing and insurance of the metal. Although the Shares are not the exact equivalent of an investment in gold, they provide investors with an alternative that allows a level of participation in the gold market through the securities market.

SGOL holds allocated physical gold bullion bars stored in secure vaults--a differentiating factor, however, is that the gold itself is stored in Zurich, Switzerland.

"The one primary difference is that we custody our gold in Switzerland," said Stan Kiang, Director of Strategic Accounts at Aberdeen Standard Investments. "For your true gold bug, they value the stricter banking laws and privacy laws that Switzerland offers."

"No government can take over an account in Switzerland. For your true gold bug, for your true doomsday scenario, they can appreciate that type of protection," Kiang added.

Cost-Effectiveness

In addition, Aberdeen Standard Investments recently reduced its sponsor fee for SGOL to 0.17 percent from 0.39 percent. With roughly $800 million in assets under management, it makes SGOL not just one of the lowest, but the lowest cost fund relative to its competitors.

"We have now priced that product at 17 basis points, which is the lowest cost in the marketplace right now" said Kiang.

Investors are not only getting a cost-effective physical gold strategy with the unique Switzerland storage component built into the fund, but also one that boasts a long track record that dates back to 2009.

"It's a pretty compelling offering for anyone that's looking for gold exposure," Kiang said.

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