Market Overview

Gold ETFs Are Still Worth It

Gold ETFs Are Still Worth It

Most of the exchange traded funds that hit 52-week highs on Thursday were newer products or fixed income funds, but outside of those groups, a slew of gold ETFs, including the SPDR Gold Shares (NYSE: GLD) joined the party.

What Happened

GLD, the world's largest ETF backed by physical holdings of gold, is higher by about 8% this month and more than 17% year to date. By the day, it seems like positive catalysts mount for gold and the related ETFs. Whether it's investors' desire for safer assests, a world awash in low and negative interest rates or central banks gobbling up gold, bullion's rally is credible and based on solid fundamentals. Plus, gold isn't vulnerable to the US/China trade spat. It's a beneficiary of that controversy.

“US-China trade negotiations continue to be a random walk,” said State Street in a recent note. “The threat of tariffs and Chinese Yuan devaluation point to a prolonged environment of trade and economic uncertainty. The US-China trade relationship impacts a broad range of US businesses and their overseas operations, driving market sentiment.”

Why It's Important

Data confirm investors are embracing gold. In the second quarter, GLD saw inflows of more than $526 million while the fund's low-cost counterpart, the SPDR Gold MiniShares Trust (NYSE: GLDM), added nearly $83 million.

Since the start of the current quarter, investors have allocated $2.32 billion to GLD while GLDM has taken in nearly $67 million. GLDM is just over a year old and nearly has $1 billion in assets under management, easily making it one of the most successful commodities ETFs to come to market since the start of 2018.

“Gold typically performs well when volatility spikes. Gold has appreciated +6.7% on average during the last nine market downturns, while the S&P 500 has pulled back an average of -13.3%,” according to State Street. “That same trend has continued so far this year, as gold prices broke through the psychological 1,500/oz. barrier on the back of persistent geopolitical tensions and real interest rates turning negative.”

What's Next

Speaking of interest rates, which are declining throughout much of the world, that's a legitimate catalyst for GLD and friends.

“Gold has historically had a negative relationship to real rates,” said State Street. “Both factors may continue to support gold prices. The rate environment is unlikely to change, given the stance by multiple central banks to lower rates and turn policy overly accommodative to combat sluggish global growth concerns.”

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