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Gold topped a more than six-month high on Jan 2 as the dollar fell along with Asian equities after disappointing data from China cemented fears of a slowdown in global economic growth. Per Chinese National Bureau of Statistics (NBS), official manufacturing purchasing managers' index (PMI) was 49.4 in December. For the first time in two years, China’s manufacturing activity has entered into a contraction phase. Per Benjamin Lu Jiaxuan, a commodities analyst at Phillip Futures, the fragility in market confidence is a boon for gold.
Gold’s climb was aided by the weakening of dollar in December amid expectations that the Federal Reserve will stop the three-year rate hike cycle in 2019. Per CME Group Fed watch tool, financial markets are not foreseeing a rate hike this year. This will diminish the demand for the greenback and help the non-yielding bullion (read: Fed Hikes Rates But Offers Dovish Outlook: ETFs to Play).
Demand for gold is likely to rise in the first quarter of the year due to seasonal factors like the Chinese New Year. The dollar index, which tracks the greenback against a basket of major currencies, was hovering near a two-month low recently. A softer dollar makes the greenback denominated bullion cheaper for investors holding other currencies.
However, U.S. economy is expected to remain healthy overall, which may diminish safe haven appeal. Also, any strong economic reports could increase expectation of rate hikes.
ETFs in focus
The uncertainty surrounding trade talks and signs of easing global economic growth will sustain demand for gold ETFs. However, a steadily performing U.S. economy will increase investors’ risk appetite resulting in lower safe haven demand. Against this backdrop, we highlight the popular gold ETFs in detail. These have been performing strongly over the past four weeks (as of Dec 31) (see: all the Precious Metals ETFs here).
The ETF is designed to track the price of gold bullion. It is the first U.S. traded gold ETF. The fund has AUM of $32.4 billion and an expense ratio of 0.40%. It carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The fund has returned 4.2% over the past four weeks (read: Palladium ETF Tops Gold in 2018: Will It Rally in 2019?).
This is the second-most popular gold ETF. The fund’s AUM is $11.5 billion and its expense ratio is 0.25%. It carries a Zacks ETF Rank #3 with a Medium risk outlook. The fund has returned 4.2% over the past four weeks.
The fund has an AUM of $846.7 million and an expense ratio of 0.39%. It carries a Zacks ETF Rank #3 with a Medium risk outlook. The fund has returned 4.2% over the past four weeks.
Image: Bigstock
Will the Rally in Gold ETFs Continue?
Gold ended 2018 on a strong note buoyed by volatile trading in global equities, rising concern about economic outlook and government shutdown in the United States. Though the yellow metal declined nearly 1.6% in 2018, it rebounded sharply in December and gained about 5%. Recently, gold’s spot price rose above the 200-day moving average and the 50-day moving average may also be exceeded in the coming weeks.
Gold topped a more than six-month high on Jan 2 as the dollar fell along with Asian equities after disappointing data from China cemented fears of a slowdown in global economic growth. Per Chinese National Bureau of Statistics (NBS), official manufacturing purchasing managers' index (PMI) was 49.4 in December. For the first time in two years, China’s manufacturing activity has entered into a contraction phase. Per Benjamin Lu Jiaxuan, a commodities analyst at Phillip Futures, the fragility in market confidence is a boon for gold.
Gold’s climb was aided by the weakening of dollar in December amid expectations that the Federal Reserve will stop the three-year rate hike cycle in 2019. Per CME Group Fed watch tool, financial markets are not foreseeing a rate hike this year. This will diminish the demand for the greenback and help the non-yielding bullion (read: Fed Hikes Rates But Offers Dovish Outlook: ETFs to Play).
Demand for gold is likely to rise in the first quarter of the year due to seasonal factors like the Chinese New Year. The dollar index, which tracks the greenback against a basket of major currencies, was hovering near a two-month low recently. A softer dollar makes the greenback denominated bullion cheaper for investors holding other currencies.
However, U.S. economy is expected to remain healthy overall, which may diminish safe haven appeal. Also, any strong economic reports could increase expectation of rate hikes.
ETFs in focus
The uncertainty surrounding trade talks and signs of easing global economic growth will sustain demand for gold ETFs. However, a steadily performing U.S. economy will increase investors’ risk appetite resulting in lower safe haven demand. Against this backdrop, we highlight the popular gold ETFs in detail. These have been performing strongly over the past four weeks (as of Dec 31) (see: all the Precious Metals ETFs here).
SPDR Gold Trust (GLD - Free Report)
The ETF is designed to track the price of gold bullion. It is the first U.S. traded gold ETF. The fund has AUM of $32.4 billion and an expense ratio of 0.40%. It carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The fund has returned 4.2% over the past four weeks (read: Palladium ETF Tops Gold in 2018: Will It Rally in 2019?).
iShares Gold Trust (IAU - Free Report)
This is the second-most popular gold ETF. The fund’s AUM is $11.5 billion and its expense ratio is 0.25%. It carries a Zacks ETF Rank #3 with a Medium risk outlook. The fund has returned 4.2% over the past four weeks.
Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL - Free Report)
The fund has an AUM of $846.7 million and an expense ratio of 0.39%. It carries a Zacks ETF Rank #3 with a Medium risk outlook. The fund has returned 4.2% over the past four weeks.
SPDR Gold MiniShares Trust (GLDM - Free Report)
The fund has AUM of $396.9 million and an expense ratio of 0.18%. It has returned 4.3% over the past four weeks.
GraniteShares Gold Trust (BAR - Free Report)
The fund has AUM of $314.5 million and an expense ratio of 0.17%. It has returned 4.2% over the past four weeks and carries a Zacks ETF Rank #3.
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