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Gold ETFs: Leader or Laggard?

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The third quarter marked the largest inflows in three years for gold ETFs, according to a World Gold Council report. As such, the ultra-popular SPDR Gold Trust ETF (GLD - Free Report) , with an asset base of around $43.7 billion and average daily volume of around 10.2 million shares, gained 4.1% in the quarter while the broad market index fund (SPY) shed 1.1% (read: What Wall Street Rally? Gold ETFs Brimming With Assets).

This is especially thanks to accommodative monetary policies, safe-haven and momentum buying even though gold demand waned. Overall gold demand rose just 3% during the quarter as gold price spike took the sheen away from jewelry buying, which shrank 16%. Bar and coin demand also dropped by half. Additionally, central bank buying fell 38% as the third quarter of 2018 featured the highest amount of buying on record.

With the start of the fourth quarter, the momentum in gold slowed down as slew of economic data, stronger-than-expected corporate earnings, and hopes of a trade deal renewed confidence in the stock market and dampened the demand for safe haven. The U.S. dollar also strengthened against a basket of currencies, diminishing the yellow metal’s attractiveness given that gold does not pay interest like fixed-income assets. Notably, GLD is down 2.1% since the start of the fourth quarter while SPY gained 7% (read: Is it the Right Time to Buy Dollar ETFs?).

Ray of Hope

Worries over possible delay in signing of U.S.-China trade deal could bring back the lure for the yellow metal in the months ahead. Per Reuters, a meeting between U.S. President Donald Trump and Chinese President Xi Jinping to sign a long-awaited interim trade deal could be delayed until December. Additionally, the central banks across the globe has been on a monetary easing policy spree that will boost demand for the yellow metal. The Fed has slashed interest rates three times so far this year and the European Central Bank also cut interest rates in a package of easing measures.

Further, the economic picture still paints a bleak outlook. This is especially true given the slew of downbeat data including the contraction in the manufacturing sector for three months in a row, and weak retail and home sales. The International Monetary Fund (IMF) last month cut its global growth forecast from 3.2% to 3% — the lowest growth pace since the 2008-2009 financial crisis for this year — citing an increasing fallout from global trade friction. Against this backdrop, gold is considered a great store of value and hedge against market turmoil (read: : Forget Manufacturing Slowdown, Bet on These Industrial ETFs).

The combination of factors indicates bullishness ahead, suggesting that investors could buy the dip in gold ETFs. From a long list of gold ETFs, we have highlighted those that have lost nearly 1.8% in a month and are poised for a rebound given their Zacks ETF Rank #3 (Hold).

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 $17.1 billion and trades in solid volume of 20.7 million shares a day on average. The ETF charges 25 bps in annual fees (see: all the Precious Metal ETFs here).  

Invesco DB Gold Fund

This fund tracks the DBIQ Optimum Yield Gold Index Excess Return, which is composed of futures contracts on gold. It has accumulated $172.7 million and trades in average daily volume of 35,000 shares. Expense ratio is 0.78%.

GraniteShares Gold Trust (BAR - Free Report)

With AUM of $578.7 million and expense ratio of 0.17%, the fund tracks the performance of gold price. It trades in a good volume of 181,000 shares per day on average.

SPDR Gold MiniShares Trust (GLDM - Free Report)

This product seeks to reflect the performance of the price of gold bullion. Being one of the low-cost products with expense ratio of 0.18%, GLDM has amassed $1.1 billion in AUM and trades in a solid average daily volume of 1.2 million shares (read: 5 Reasons to Buy Gold ETFs as Price May Touch $2000).

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 $172 million. OUNZ trades in average daily volume of 46,000 shares.

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