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Gold Set to Sparkle in Q4: ETFs to Consider

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Despite the bullishness in the stock market, gold maintained its sheen this year thanks to geopolitical concerns, instability in Europe and United States as well as lofty stock valuations. This is especially true, as the bullion has risen about 9.2% while the S&P 500 Index has gained 13.2% in the year-to-date time frame.  

After the fourth consecutive weekly loss, gold price rebounded to a two-week high toward $1,300 per ounce level as uptick in geopolitical uncertainty raised demand for the precious metal as a safe haven. Tensions between the United States and North Korea flared up again this week after President Donald Trump tweeted that years of talking with North Korea over its nuclear buildup have proved futile and that “only one thing will work.” This sparked fears of World War 3, raising the appeal for the metal as a store of value and hedge against market turmoil. In addition, a Russian report shows that North Korea is preparing to test a missile that could potentially reach the United States (read: ETF Strategies to Benefit from North Korea Tensions).

Further, a soft dollar and dovish Fed minutes added to the strength. Though the December rate hike expectation remains intact, the minutes revealed low inflation concerns pushing the greenback down. The dollar index, which measures the greenback’s value against a basket of six major currencies, touched its lowest level since Sep 26. A rise in euro is putting further pressure on the greenback. A weak dollar is a huge boon to gold prices, as it makes gold cheap for holders of other currencies.

Moreover, higher demand in India, the world’s second-biggest consumer of gold, is lending support to the price of the yellow metal. Notably, demand in India tends to rise in the final quarter due to the wedding and festive season (read: What Lies Ahead for Gold ETFs?).   

How to Play?

Given the optimism and intense buying pressure on gold, investors have a long list of options in the ETF world to tap the metal’s rally.

Gold ETFs

While there are many products that are directly linked to the spot gold price or futures, we have highlighted the three most-popular ETFs. These have gained more than 12% in the year-to-date time frame and carry a favorable Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

SPDR Gold Trust ETF GLD: This is the largest and most popular ETF in the gold space with AUM of $35.3 billion and average daily volume of around 7.8 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 $9.4 billion and trades in solid volume of 8.8 million shares a day on average. The ETF charges 25 bps in annual fees.  

ETFS Physical Swiss Gold Shares 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 more than $1.0 billion in its asset base and trades in lower volume of 32,000 shares per day. The product has an expense ratio of 0.39% (read: What Lies Ahead for Gold ETFs?).

Leveraged Gold ETFs

Investors who are bullish on gold may consider a near-term long on the precious metal with the following ETFs depending on their risk appetite.

ProShares Ultra Gold ETF UGL: This fund seeks to deliver twice (2x or 200%) the return of the daily performance of gold bullion in U.S. dollars. It charges 95 bps in fees a year and has amassed $90.6 million in its asset base. Volume is light at about 41,000 shares per day. The ETF has gained 21.6% so far this year.

DB Gold Double Long ETN DGP: This ETN seeks to deliver twice the return of the daily performance of the DBIQ Optimum Yield Gold Index Excess Return, charging 75 bps in fees per year. It has accumulated $118.4 million in its asset base so far and trades in an average daily volume of 34,000 shares. The ETN is up 24.6% this year (see: all the Leveraged Commodity ETFs here).

VelocityShares 3x Long Gold ETN UGLD: This product provides three times (3x or 300%) exposure to the daily performance of the S&P GSCI Gold Index Excess Return plus returns from U.S. T-bills net of fees and expenses. The ETN has been able to manage an asset base of $108 million while charging a higher fee of 1.35% annually. However, the note trades in a solid volume of about 669,000 shares a day on average and has surged 32.3% in the year-to-date time frame.

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