Gold Surges On Weak U.S. Inflation: ETFs In Focus

The yellow metal hit a two-week high as U.S. reported subdued inflation data, sparking concerns about the timing of the next interest rate hike (read: Gold ETFs Awaiting Bullish Reversals in Second Half of 2017?).

Consumer prices grew 1.6% year over year in June 2017, while it remained unchanged on a monthly basis. This is far from the Fed’s 2% target. In the congressional testimony last week, Janet Yellen cited that the Fed will be focusing on inflation numbers and that persistent weak inflation figures will lead it to hike rates slowly.

Therefore, the outlook for another rate hike this year and of the Fed’s shrinking of its $4.5 trillion balance sheet remains clouded. Per Fed fund futures data, odds of a 25 basis points rate hike in December have declined to around 47%.

This led to a decline in the greenback and the 10-year US Treasury yield hit a month low. The weaker dollar boosted the commodity, as the dollar priced metal became cheaper for investors holding other currencies (read: 5 Reasons Why Gold ETFs May be Up for a Rebound).

Let us now discuss a few ETFs focused on providing exposure to gold.

SPDR Gold Shares (HK:2840) ETF (V:GLD)

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 $32.8 billion and charges a fee of 40 basis points a year. It has returned 7.01% year to date but has lost 7.8% in the last one year. As such, GLD (NYSE:GLD) currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares Gold Trust ETF (AX:IAU)

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 $8.38 billion and charges a fee of 25 basis points a year. It has returned 7.04% year to date but has lost 7.7% in the last one year. As such, IAU currently carries a Zacks ETF Rank #3 with a Medium risk outlook.

ETFS Physical Swiss Gold Shares ETF SGOL

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 $1.01 billion and charges a fee of 39 basis points a year. It has returned 7.03% year to date but has lost 7.81% in the last one year. As such, SGOL currently carries a Zacks ETF Rank #3 with a Medium risk outlook.

Another way to gain exposure to the metal is through ETFs investing in commodity futures. Let us discuss one such ETF.

PowerShares DB Gold Fund (WA:DGL)

This fund is appropriate for those looking for a cost efficient way to invest 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 $149.6 million and is relatively expensive as it charges a fee of 78 basis points a year. It has returned 6.24% year to date but has lost 9.25% in the last one year. As such, DGL currently carries a Zacks ETF Rank #3 with a Medium risk outlook.

Bottom Line

Although the metal’s prices surged on release of the recent economic data, there is still high uncertainty regarding the future path it is expected to take. Although rising global markets made gold investing less attractive, there are still doubts over the implementation of President Donald Trump’s pro-business policies. This is primarily due to the fact that though parts of his travel ban were passed recently, he still faces challenges in the senate to make his healthcare bill cross the finish line and also introduce the much-awaited tax reforms. Moreover, rising geopolitical risks involving North Korea may also make gold investing attractive (read: 6 ETFs to Buy if Global Tensions Flare Up).

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