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Gold continued its strong performance this year, topping $1,300 for the first time since Jun 14, 2018. In fact, the bullion registered its best one-day percentage gain on Jan 25 since Oct 11 on the hopes that the Fed will keep interest rates unchanged during its two-day policy meeting later in the week. Additionally, a myriad of woes led investors’ flight to safety in the yellow metal (read: Top ETF Trends for 2019).
Given the strong momentum, we have highlighted some solid reasons to invest in gold ETFs now:
Fed Action
In its two-day FOMC meeting slated for Jan 29 and 30, the central bank is expected to pause interest rates hike that will raise the appeal for gold. Early in the month, Fed minutes indicated caution on future interest rate hikes. Lower interest rates will continue to weigh on the dollar against the basket of currencies, raising the yellow metal’s attractiveness as it does not pay interest like fixed-income assets.
Global Worries
The global stock market has been gripped by uncertainty regarding still unresolved Sino-U.S. trade, Brexit, geopolitics and U.S. government shutdown, which lasted for 35 days. While the shutdown has been temporarily averted for three weeks, the uncertainty remains. This is because a deal without a border wall might again lead to closure of the government after Feb 15. Amid such backdrop, gold is considered a great store of value and hedge against market turmoil (read: Prolonged Shutdown Raises Recession Risk: ETFs to Consider).
A slew of disappointing economic data across the globe aggravated the threats of global slowdown, making gold more appealing to investors. In particular, the World Bank recently cut global growth forecast to 2.9% for this year from the previous projection of 3%, citing rising trade tension, weakening manufacturing activity and growing financial stress in emerging-market countries. Meanwhile, the International Monetary Fund also lowered its growth forecast by 0.2 percentage points to 3.5% on account of weakness in Germany and Turkey. Also, the agency is concerned about the failure to resolve trade tensions that could further destabilize a slowing global economy.
Weak Earnings Growth
The Q4 reporting cycle started on a weak note with deceleration in earnings growth. This is especially true as earnings of 113 S&P 500 members that have reported Q4 results so far are up 12.4% on 6.5% revenue growth. This is much lower than earnings and revenue growth of 19.2% and 7.9%, respectively for the same cohort of companies in the preceding earnings season. The pace of growth is expected to decelerate further in the current quarter and beyond.
Further, the companies appear to be struggling to beat consensus EPS and revenue estimates with 67.3% beating on earnings and 58.4% coming ahead of expectations on the top line. For the same cohort of companies, the proportion of positive EPS and revenue surprise was 80.5% and 61.9%, respectively in the Q3 earnings season (read: Forget Earnings Slowdown, Bet on Revenue-Weighted ETFs).
Weak earnings and revenue trends have made investors jittery, boosting the demand for gold as a safe haven.
Bullish Views
Per the Kitco News gold survey, both Wall Street and Main Street expect gold to rise due to combination of many factors that are moving in favor of the metal. Out of 18 market professionals in the Wall Street survey, 72% expects gold price to be higher, 6% lower and 22% price to move sideways. Meanwhile, in an online Main Street poll, 47% predicts gold upward movement while 29% expects the metal to move in the opposite direction and 24% see a sideways market.
ETFs to Tap
In view of the reasons discussed above, we highlight six popular gold ETFs that could be excellent plays for investors who believe that bullion will continue to move higher given the rocky stock market fundamentals.
This is the largest and most popular ETF in the gold space with AUM of $33.7 billion and average daily volume of around 8.1 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%. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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 $12.2 billion and trades in solid volume of 13.4 million shares a day on average. The ETF charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Will the Rally in Gold ETFs Continue?).
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 $873.4 million in its asset base and trades in lower volume of 41,000 shares per day. The product has an expense ratio of 0.17% and has a Zacks ETF Rank #3 with a Medium risk outlook.
This product seeks to reflect the performance of the price of gold bullion. Being a low-cost product with expense ratio of just 0.18%, GLDM has gathered $491.2 million in AUM within seven months while trading in solid average daily volume of 603,000 shares.
With AUM of $437.4 million and expense ratio of 0.17%, the fund tracks the performance of gold price. It trades in lower volume of 2700 shares per day on average and has a Zacks ETF Rank #3 (see: all the Precious Metals ETFs here).
This product seeks to provide investors with a convenient and cost-efficient way to buy and hold gold through an exchange-traded product with the option to take physical delivery of gold. It charges 40 bps in fees per year and has AUM of $149.5 million. OUNZ trades in average daily volume of 51,000 shares and has a Zacks ETF Rank #3 with a Medium risk outlook.
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Four Solid Reasons to Buy Gold ETFs Now
Gold continued its strong performance this year, topping $1,300 for the first time since Jun 14, 2018. In fact, the bullion registered its best one-day percentage gain on Jan 25 since Oct 11 on the hopes that the Fed will keep interest rates unchanged during its two-day policy meeting later in the week. Additionally, a myriad of woes led investors’ flight to safety in the yellow metal (read: Top ETF Trends for 2019).
Given the strong momentum, we have highlighted some solid reasons to invest in gold ETFs now:
Fed Action
In its two-day FOMC meeting slated for Jan 29 and 30, the central bank is expected to pause interest rates hike that will raise the appeal for gold. Early in the month, Fed minutes indicated caution on future interest rate hikes. Lower interest rates will continue to weigh on the dollar against the basket of currencies, raising the yellow metal’s attractiveness as it does not pay interest like fixed-income assets.
Global Worries
The global stock market has been gripped by uncertainty regarding still unresolved Sino-U.S. trade, Brexit, geopolitics and U.S. government shutdown, which lasted for 35 days. While the shutdown has been temporarily averted for three weeks, the uncertainty remains. This is because a deal without a border wall might again lead to closure of the government after Feb 15. Amid such backdrop, gold is considered a great store of value and hedge against market turmoil (read: Prolonged Shutdown Raises Recession Risk: ETFs to Consider).
A slew of disappointing economic data across the globe aggravated the threats of global slowdown, making gold more appealing to investors. In particular, the World Bank recently cut global growth forecast to 2.9% for this year from the previous projection of 3%, citing rising trade tension, weakening manufacturing activity and growing financial stress in emerging-market countries. Meanwhile, the International Monetary Fund also lowered its growth forecast by 0.2 percentage points to 3.5% on account of weakness in Germany and Turkey. Also, the agency is concerned about the failure to resolve trade tensions that could further destabilize a slowing global economy.
Weak Earnings Growth
The Q4 reporting cycle started on a weak note with deceleration in earnings growth. This is especially true as earnings of 113 S&P 500 members that have reported Q4 results so far are up 12.4% on 6.5% revenue growth. This is much lower than earnings and revenue growth of 19.2% and 7.9%, respectively for the same cohort of companies in the preceding earnings season. The pace of growth is expected to decelerate further in the current quarter and beyond.
Further, the companies appear to be struggling to beat consensus EPS and revenue estimates with 67.3% beating on earnings and 58.4% coming ahead of expectations on the top line. For the same cohort of companies, the proportion of positive EPS and revenue surprise was 80.5% and 61.9%, respectively in the Q3 earnings season (read: Forget Earnings Slowdown, Bet on Revenue-Weighted ETFs).
Weak earnings and revenue trends have made investors jittery, boosting the demand for gold as a safe haven.
Bullish Views
Per the Kitco News gold survey, both Wall Street and Main Street expect gold to rise due to combination of many factors that are moving in favor of the metal. Out of 18 market professionals in the Wall Street survey, 72% expects gold price to be higher, 6% lower and 22% price to move sideways. Meanwhile, in an online Main Street poll, 47% predicts gold upward movement while 29% expects the metal to move in the opposite direction and 24% see a sideways market.
ETFs to Tap
In view of the reasons discussed above, we highlight six popular gold ETFs that could be excellent plays for investors who believe that bullion will continue to move higher given the rocky stock market fundamentals.
SPDR Gold Trust ETF (GLD - Free Report)
This is the largest and most popular ETF in the gold space with AUM of $33.7 billion and average daily volume of around 8.1 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%. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares Gold Trust (IAU - Free Report)
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 $12.2 billion and trades in solid volume of 13.4 million shares a day on average. The ETF charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Will the Rally in Gold ETFs Continue?).
Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL - Free Report)
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 $873.4 million in its asset base and trades in lower volume of 41,000 shares per day. The product has an expense ratio of 0.17% and has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR Gold MiniShares Trust (GLDM - Free Report)
This product seeks to reflect the performance of the price of gold bullion. Being a low-cost product with expense ratio of just 0.18%, GLDM has gathered $491.2 million in AUM within seven months while trading in solid average daily volume of 603,000 shares.
GraniteShares Gold Trust (BAR - Free Report)
With AUM of $437.4 million and expense ratio of 0.17%, the fund tracks the performance of gold price. It trades in lower volume of 2700 shares per day on average and has a Zacks ETF Rank #3 (see: all the Precious Metals ETFs here).
VanEck Merk Gold Trust (OUNZ - Free Report)
This product seeks to provide investors with a convenient and cost-efficient way to buy and hold gold through an exchange-traded product with the option to take physical delivery of gold. It charges 40 bps in fees per year and has AUM of $149.5 million. OUNZ trades in average daily volume of 51,000 shares and has 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 >>