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Gold has a somewhat uncertain future. Weak U.S. economic data led to a rally in the gold prices and a decline in the greenback. Moreover, current Fed chair Janet Yellen has warned that faster rate hikes might cause inflation to go below the Fed’s 2% target. Moreover, newly elected Fed chair, Jerome Powell, is seen as a dovish lead, who will not steer much from the current policy.
Rate hikes are a negative for gold as the precious metal offers no yield. Per the CME Fed Watch tool, there is a 91.5% chance of a 25 basis point rate hike and 8.5% chance of a 50 basis point rate hike in December. Although this is a potential negative for gold, inflation concerns have given rise to new doubts over if the Fed will go ahead with its initial plans of three rate hikes in 2018. This further led to a rally in the metal and drove the greenback lower.
Factors Driving Gold Prices
U.S. Economic Scenario
Latest economic data has been weak for the United States. New orders for manufactured durable goods in October decreased 1.2% on a monthly basis to $236 billion from $238.8 billion. This was below expectations of a 0.3% increase.
There is increased uncertainty with regard to Trump’s tax reform and deregulation plans. This might increase investors’ appeal for safety and in turn make them shift to safe haven funds.
Geopolitics
North Korea has been continuously testing missiles to develop a nuclear program. Moreover, North Korea was recently added to a list of nations the United States considers sponsors terrorism. The Asian nation strongly condemned this action.
This came as President Donald Trump enacted new sanctions aimed at North Korean shipping to put further pressure on the nation to abandon its nuclear program. However, North Korea responded by saying that they will continue to work on the nuclear program amid continuous sanctions by the United States.
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 $34.9 billion and charges a fee of 40 basis points a year. It has returned 11.9% year to date and 6.5% in a year (as of Nov 22, 2017). As such, GLD carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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 $9.9 billion and charges a fee of 25 basis points a year. It has returned 12.1% year to date and 6.8% in a year (as of Nov 22, 2017). As such, IAU carries a Zacks ETF Rank #3 with a Medium risk outlook.
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 11.9% year to date and 6.5% in a year (as of Nov 22, 2017). As such, SGOL carries a Zacks ETF Rank #3 with a Medium risk outlook.
Another way of gaining exposure to the metal is through ETFs investing in commodity futures. Let us discuss one such ETF.
PowerShares DB Gold Fund
This fund is appropriate for those looking for a cost-efficient way of investing in commodity futures. It seeks to match the performance of DBIQ Optimum Yield Gold Index Excess Return and generate return from the fund’s collateral holdings primarily consisting of safe government securities before fees and expenses. However, since this fund invests in the futures markets, it is not deemed suitable for all investors owing to the highly speculative nature of the investments.
It has AUM of $139.8 million and is relatively expensive as it charges a fee of 78 basis points a year. It has returned 10.9% year to date and 5.3% in a year (as of Nov 22, 2017). As such, DGL carries a Zacks ETF Rank #3 with a Medium risk outlook.
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Gold ETFs Gain After FOMC Minutes
Gold has a somewhat uncertain future. Weak U.S. economic data led to a rally in the gold prices and a decline in the greenback. Moreover, current Fed chair Janet Yellen has warned that faster rate hikes might cause inflation to go below the Fed’s 2% target. Moreover, newly elected Fed chair, Jerome Powell, is seen as a dovish lead, who will not steer much from the current policy.
Rate hikes are a negative for gold as the precious metal offers no yield. Per the CME Fed Watch tool, there is a 91.5% chance of a 25 basis point rate hike and 8.5% chance of a 50 basis point rate hike in December. Although this is a potential negative for gold, inflation concerns have given rise to new doubts over if the Fed will go ahead with its initial plans of three rate hikes in 2018. This further led to a rally in the metal and drove the greenback lower.
Factors Driving Gold Prices
U.S. Economic Scenario
Latest economic data has been weak for the United States. New orders for manufactured durable goods in October decreased 1.2% on a monthly basis to $236 billion from $238.8 billion. This was below expectations of a 0.3% increase.
There is increased uncertainty with regard to Trump’s tax reform and deregulation plans. This might increase investors’ appeal for safety and in turn make them shift to safe haven funds.
Geopolitics
North Korea has been continuously testing missiles to develop a nuclear program. Moreover, North Korea was recently added to a list of nations the United States considers sponsors terrorism. The Asian nation strongly condemned this action.
This came as President Donald Trump enacted new sanctions aimed at North Korean shipping to put further pressure on the nation to abandon its nuclear program. However, North Korea responded by saying that they will continue to work on the nuclear program amid continuous sanctions by the United States.
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 $34.9 billion and charges a fee of 40 basis points a year. It has returned 11.9% year to date and 6.5% in a year (as of Nov 22, 2017). 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 $9.9 billion and charges a fee of 25 basis points a year. It has returned 12.1% year to date and 6.8% in a year (as of Nov 22, 2017). 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 11.9% year to date and 6.5% in a year (as of Nov 22, 2017). As such, SGOL carries a Zacks ETF Rank #3 with a Medium risk outlook.
Another way of gaining exposure to the metal is through ETFs investing in commodity futures. Let us discuss one such ETF.
PowerShares DB Gold Fund
This fund is appropriate for those looking for a cost-efficient way of investing in commodity futures. It seeks to match the performance of DBIQ Optimum Yield Gold Index Excess Return and generate return from the fund’s collateral holdings primarily consisting of safe government securities before fees and expenses. However, since this fund invests in the futures markets, it is not deemed suitable for all investors owing to the highly speculative nature of the investments.
It has AUM of $139.8 million and is relatively expensive as it charges a fee of 78 basis points a year. It has returned 10.9% year to date and 5.3% in a year (as of Nov 22, 2017). As such, DGL carries a Zacks ETF Rank #3 with a Medium risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>