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3 ETFs to Buy on Spike in Gold Investments

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Gold investments have been generating massive demand lately, as investments in ETFs focused on providing exposure to the precious metal have been surging. Per Bloomberg data, assets in gold ETFs jumped to 2,250 tons, the highest since May 2013, as the greenback declined further and rising consumer prices in the United States increased gold’s appeal as an inflation hedge.

Factors Impacting Gold

U.S. Economic Scenario

Weakness in the greenback has been pushing gold prices higher. PowerShares DB US Dollar Bullish ETF (UUP - Free Report) is down 2.1% so far this year and has declined 9.2% in a year.

Coming to rate hikes, they are a negative for gold as the precious metal offers no yield. Per the CME Fed Watch tool, there is a 72.6% chance of a 25 basis point rate hike and 1.1% chance of a 50 basis point rate hike in March.

Although this is a potential negative for gold, inflation concerns have increased gold’s appeal as an inflation hedge. “Investors are once again looking to gold as a potential inflation hedge,” a Bloomberg article, citing a statement by Suki Cooper, an analyst at Standard Chartered Plc said. Moreover, a Business Times article cited a note by UBS, "The anticipation of a March hike could act as additional weight for gold, although given this is now largely anticipated, the downside risks should be limited and gold's reaction function is likely to be asymmetric."

From a political scenario, gold prices increased once the U.S. government shutdown ended, primarily because the government could only reach a temporary solution, extending the Congress spending until Feb 8. This was the fourth temporary spending bill since October 2016, after Democrats agreed to back the bill on a specific condition, which is future talks on the fate of Deferred Action for Childhood Arrivals (DACA) recipients (read: Is Government Shutdown a Bull Market Threat? ETFs in Focus).

Geopolitics

North Korea has been continuously testing missiles to develop a nuclear program. North Korean premier, Kim Jong-un, warned the United States of potential nuclear action in case his country is threatened. Moreover, rising concerns in the Middle East have also increased the appeal of safe haven investing (read: What Does Kim Jong-Un's Speech Hold For Safe Haven ETFs?).

Progress in this space is expected, as major political leaders meet in Davos from Jan 23-26, for the World Economic Forum 2018 .

Let us now discuss a few ETFs focused on providing exposure to gold (see all Precious Metals ETFs here).

SPDR Gold Shares ETF (GLD - Free Report)

This fund offers physical exposure to gold. It seeks to track the performance of the gold bullion and might turn out to be a cost-efficient way of gaining exposure to the commodity even after accounting for the fund’s expenses.

It has AUM of $36.4 billion and charges a fee of 40 basis points a year. It has returned 9.9% in a year. As such, GLD carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares Gold Trust ETF (IAU - Free Report)

This ETF seeks to provide exposure to prices of the gold bullion and can be used as a means to attain portfolio diversification or achieve hedging targets.

It has AUM of $10.9 billion and charges a fee of 25 basis points a year. It has returned 10.1% in a year. As such, IAU carries a Zacks ETF Rank #3 with a Medium risk outlook.

ETFS Physical Swiss Gold Shares ETF (SGOL - Free Report)

This fund aims to track the performance of the gold bullion before fees and expenses and is a convenient way of gaining exposure to the metal.

It has AUM of $1.1 billion and charges a fee of 39 basis points a year. It has returned 9.8% in a year. As such, SGOL carries a Zacks ETF Rank #3 with a Medium risk outlook.

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