Amid a strong U.S. dollar and investors’ appetite for domestic equities, 2018 has been unkind to gold and the related gold exchange traded funds (ETFs). SPDR Gold Shares (NYSEARCA:GLD), the world’s largest gold ETF by assets, is down more than 9% year-to-date.
If gold cannot cling to its modest September gain and finishes the month lower, that will mark the sixth consecutive month the yellow metal has declined. Compounding bullion’s woes is that gold ETFs are an important driver of gold prices and domestic investors are displaying little enthusiasm for gold ETFs this year.
Year-to-date, investors have yanked $3.63 billion from GLD, an outflows sum surpassed by just five other U.S.-listed ETFs. A significant percentage of that $3.63 billion has departed GLD in the current quarter. GLD’s third-quarter outflows of $2.97 billion are larger than any other ETF trading in the U.S.
There is some potentially good news for bullion and gold ETFs, however. Bearish traders are starting to lose interest in the short gold trade.
The Commodities Futures Trading Commission (CFTC) commitment of traders report for the week ended Sept. 18 “showed money managers dropped their speculative gross long positions in Comex gold futures by 2,689 contracts to 97,904. At the same time, short bets increased by 4,555 contracts to 180,367. Gold’s net-short positioning currently stands at 82,463 contracts,” according to Kitco.
Here are some gold ETFs for dip buyers and skittish investors to consider.
SPDR Long Dollar Gold Trust (GLDW)
Expense ratio: 0.50% per year, or $50 on a $10,000 investment.
The SPDR Long Dollar Gold Trust (NYSEARCA:GLDW) is a gold ETF right for this strong dollar environment. This gold ETF targets the Solactive GLD Long USD Gold Index, a benchmark designed to a long position in physical gold and a short position in various major currencies.
Those currencies are the currencies are the euro, Japanese yen, British pound sterling, Canadian dollar, Swedish krona and Swiss franc. GLDW’s daily value “is determined by the net change in both the price of gold and the value of the USD against the value of the Reference Currencies comprising the FX basket,” according to State Street.
Sure, GLDW is down 1.66% year-to-date, but that is significantly less bad than the losses sported by traditional gold ETFs and that performance is indicative of the benefits of hedging gold when the dollar is strong.
SPDR Gold MiniShares Trust (GLDM)
Expense ratio: 0.18% per year, or $18 on a $10,000 investment.
The ETF-fee war is permeating the gold ETF arena. Rather than lower the fee on GLD, State Street and the World Gold Council (WGC) partnered to launch the SPDR Gold MiniShares Trust (NYSEARCA:GLDM) as “a cost-effective and convenient way to invest in gold.”
This gold ETF debuted three months ago and even in a trying environment for gold, GLDM is finding an audience. The fund has $134.20 million in assets under management as of Sept. 21, a solid haul all things considered.
With GLDM being one of the least expensive gold ETFs on the market, it is reasonable to expect cost-conscious investors will gravitate to this product when gold bounces back.
VanEck Merk Gold Trust (OUNZ)
Expense ratio: 0.40% per year, or $40 on a $10,000 investment.
A frequent criticism of traditional gold ETFs, like GLD, is that while these products represent physical ownership of gold, investors do not get physical gold when they liquidate their positions. The VanEck Merk Gold Trust (NYSEARCA:OUNZ) changes that.
OUNZ’s “primary objective is to provide investors with an opportunity to invest in gold through the shares and be able to take delivery of physical gold bullion (physical gold) in exchange for their shares. The Trust’s secondary objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust’s operations,” according to VanEck.
Gold owned by OUNZ is the form of London bars, but Merk can convert those bars into gold coins and other gold bars in denominations required by investors.
Sprott Gold Miners ETF (SGDM)
Expense ratio: 0.57% per year, or $57 on a $10,000 investment.
Sure as the day is long, when gold slumps, miners and the corresponding ETFs usually perform even worse. The Sprott Gold Miners ETF (NYSEARCA:SGDM) has not been immune to that trend as highlighted by a year-to-date decline of more than 25%. Traditional gold miners ETFs are usually cap-weighted funds, but SGDM uses a smart beta methodology that could prove useful when miners rebound.
This gold ETF’s underlying index targets the 25 mining stocks with the highest beta (sensitivity) to spot gold prices “with each stock’s weighting in the index adjusted based on its quarterly revenue growth on a year-over-year basis and the quality of its balance sheet, as measured by long-term debt to equity,” according to Sprott.
Avoiding heavily indebted companies is crucial with gold miners because the industry took on large amounts of debt during gold’s previous bull market. Adding to the case for this gold ETF are the significant valuation discounts currently found throughout the precious metals mining space.
iShares Gold Strategy ETF (IAUF)
Expense ratio: 0.25% per year, or $25 on a $10,000 investment.
The iShares Gold Strategy ETF (CBOE:IAUF) is a unique, actively managed to gold exposure. This gold ETF features another gold ETF, the iShares Gold Trust (NYSEARCA:IAU), as one of its largest holdings. IAUF can also hold physical gold, gold futures and other derivatives.
This gold ETF, which is designed to be more tax efficient that direct ownership of commodities, provides “exposure to the price performance of gold” and is “designed to simplify tax filings as the fund does not require K-1 tax reporting,” according to BlackRock.
Todd Shriber owns shares of IAU.
