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Will Gold ETFs Keep Soaring After an Impressive May?
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The yellow metal has pleased investors in May, with around a 7.7% rise in prices. Notably, the bullion is moving toward its best monthly gain since July 2020. Majority of the market analysts are of the opinion that growing concerns surrounding rising U.S. inflation levels, weaker U.S. dollar and lower bond yields have been behind the upside in bullion prices.
In this regard, Stephen Innes, managing partner at SPI Asset Management, has said that “Gold is pretty much drawing its strength from inflation fears and some inclination of the yields,” per a Reuters article. He has also said that “The dollar is staying weaker, that’s fairly supportive. Gold bulls now have their eyes set on $2,000 and most are thinking it’s going to go quite higher.”
Notably, recently-released data highlighted inflation levels rising at the fastest speed since 2008 in April. Notably, the Consumer Price Index rose 4.2% year over year in comparison with the Dow Jones estimate of a 3.6% rise, per a CNBC article. The Producer Price Index in April expanded 6.2% from the year-ago month, representing its biggest expansion in a decade.
Investors are worried that rising inflation may hurt corporate margins and profits. They also fear that the consistent rise in inflation may put pressure on the Fed to tighten monetary policy, according to a CNBC article.
The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. Moreover, rising inflation often lowers the value of the concerned currency. If the greenback remains subdued, gold will gain some glitter back.
Gold ETFs to Consider
Some analysts believe the Fed’s measures to provide support to the ailing economy seem to be supportive of investments in gold and treasuries. Moreover, interest-rate cuts are lowering the opportunity costs of investing in non-yielding bullion.
Going on, the Fed has been acting super-dovish since March 2020. It has decided to maintain rates near zero until 2023, at least. Moreover, the central bank has raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year.
The Fed’s projections for core inflation, as measured by personal consumption expenditures, are 2.2% for 2021, 2% for 2022 and 2.1% for 2023 along with the longer-run measure at 2%.
Also, analysts at the Morgan Stanley expect the yellow metal to maintain prices above $1,700 an ounce through the second half of the year, as mentioned in a Bloomberg article.
According to a report by Wang Tao, a Reuters’ technical analyst, spot gold prices may test resistance at $1,919 per ounce after rising from the May 13 low of $1,808.44, per a Reuters article. Going by the same article, if the spot gold prices break past the resistance level then they may rise to the $1,932-$1,953 range.
Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) and GraniteShares Gold Trust (BAR - Free Report) are some of the popular ETFs. These funds carry a Zacks ETF Rank #3 (Hold). Below we have discussed these in detail:
GLD
This is the largest and most popular ETF in the gold space, with AUM of $63.22 billion and three-month average trading volume of about 8.9 million shares. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: With No Bitcoin ETF, What Other Options Trades Provide Crypto Exposure?).
IAU
This ETF offers exposure to the day-to-day movement of the price of gold bullion. It has AUM of $30.16 billion and trades in average three-month volume of 11.5 million shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold. The ETF charges 25 basis points (bps) in annual fees (read: ETF Strategies to Combat Aggravating Coronavirus Pandemic).
GLDM
This product seeks to reflect the performance of the price of gold bullion, less GLDM’s expenses. Being one of the low-cost products with an expense ratio of 0.18%, GLDM has accumulated $4.54 billion in AUM and trades in average three-month volume of 2.5 million shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold (read: Can Gold ETFs Gain in 2021 After Two Positive Years?).
BAR
With AUM of $1.13 billion and an expense ratio of 0.17%, the fund tracks the performance of gold price less trust expenses. It trades in three-month average trading volume of 368,000 shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold (see: all the Precious Metal ETFs here).
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Will Gold ETFs Keep Soaring After an Impressive May?
The yellow metal has pleased investors in May, with around a 7.7% rise in prices. Notably, the bullion is moving toward its best monthly gain since July 2020. Majority of the market analysts are of the opinion that growing concerns surrounding rising U.S. inflation levels, weaker U.S. dollar and lower bond yields have been behind the upside in bullion prices.
In this regard, Stephen Innes, managing partner at SPI Asset Management, has said that “Gold is pretty much drawing its strength from inflation fears and some inclination of the yields,” per a Reuters article. He has also said that “The dollar is staying weaker, that’s fairly supportive. Gold bulls now have their eyes set on $2,000 and most are thinking it’s going to go quite higher.”
Notably, recently-released data highlighted inflation levels rising at the fastest speed since 2008 in April. Notably, the Consumer Price Index rose 4.2% year over year in comparison with the Dow Jones estimate of a 3.6% rise, per a CNBC article. The Producer Price Index in April expanded 6.2% from the year-ago month, representing its biggest expansion in a decade.
Investors are worried that rising inflation may hurt corporate margins and profits. They also fear that the consistent rise in inflation may put pressure on the Fed to tighten monetary policy, according to a CNBC article.
The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. Moreover, rising inflation often lowers the value of the concerned currency. If the greenback remains subdued, gold will gain some glitter back.
Gold ETFs to Consider
Some analysts believe the Fed’s measures to provide support to the ailing economy seem to be supportive of investments in gold and treasuries. Moreover, interest-rate cuts are lowering the opportunity costs of investing in non-yielding bullion.
Going on, the Fed has been acting super-dovish since March 2020. It has decided to maintain rates near zero until 2023, at least. Moreover, the central bank has raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year.
The Fed’s projections for core inflation, as measured by personal consumption expenditures, are 2.2% for 2021, 2% for 2022 and 2.1% for 2023 along with the longer-run measure at 2%.
Also, analysts at the Morgan Stanley expect the yellow metal to maintain prices above $1,700 an ounce through the second half of the year, as mentioned in a Bloomberg article.
According to a report by Wang Tao, a Reuters’ technical analyst, spot gold prices may test resistance at $1,919 per ounce after rising from the May 13 low of $1,808.44, per a Reuters article. Going by the same article, if the spot gold prices break past the resistance level then they may rise to the $1,932-$1,953 range.
Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) and GraniteShares Gold Trust (BAR - Free Report) are some of the popular ETFs. These funds carry a Zacks ETF Rank #3 (Hold). Below we have discussed these in detail:
GLD
This is the largest and most popular ETF in the gold space, with AUM of $63.22 billion and three-month average trading volume of about 8.9 million shares. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: With No Bitcoin ETF, What Other Options Trades Provide Crypto Exposure?).
IAU
This ETF offers exposure to the day-to-day movement of the price of gold bullion. It has AUM of $30.16 billion and trades in average three-month volume of 11.5 million shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold. The ETF charges 25 basis points (bps) in annual fees (read: ETF Strategies to Combat Aggravating Coronavirus Pandemic).
GLDM
This product seeks to reflect the performance of the price of gold bullion, less GLDM’s expenses. Being one of the low-cost products with an expense ratio of 0.18%, GLDM has accumulated $4.54 billion in AUM and trades in average three-month volume of 2.5 million shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold (read: Can Gold ETFs Gain in 2021 After Two Positive Years?).
BAR
With AUM of $1.13 billion and an expense ratio of 0.17%, the fund tracks the performance of gold price less trust expenses. It trades in three-month average trading volume of 368,000 shares. At launch, each share of this ETF represented about 1/100th of an ounce of gold (see: all the Precious Metal ETFs here).
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 >>