How to trade gold rally with ETFs & stocks

 

The continued bullishness in the stock market and the two-year U.S. Treasury yields trading above 2% for the first time since 2008 failed to dull gold this year too. This is especially true as the bullion logged in the best January opening since 2013 and has now climbed to the highest level since August 2016.

A weak dollar environment has been driving the gold price higher. The dollar index, which measures the greenback’s value against a basket of six major currencies, weakened further from its three-year lows. A weak dollar is a huge boon to gold prices, as it makes gold affordable for holders of other currencies.

Trade fears arising from Trump’s protectionist stance lately are adding to the strength in the bullion market. Further, political instability in Washington, signs of rising inflation and geopolitical tensions are raising the appeal for the yellow metal as a store of value. If these weren’t enough, the latest crash in cryptocurrencies, which sapped some demand for gold, brought investors back to the traditional market of precious.

Coming to the demand side, a pick-up in the economy in many parts of the world has led to strong demand for gold. Per the World Gold Council, demand is expected to be robust this year thanks to synchronized global economic growth, shrinking central bank balance sheets, rising interest rates, frothy asset prices and market transparency.

The yellow metal is currently trading at nearly $1,360 per ounce, rising about 3% so far this year after registering its biggest annual rally in seven years. This has compelled investors piling up exchange-traded funds backed by gold, pushing assets to the highest level in more than four years.

How to Play?

Given the optimism and intense buying pressure on gold, investors have a long list of options, in both the ETF & stock world, to tap the metal’s rally. Below, we have highlighted some of them:

Gold ETFs

While there are many products that are directly linked to the spot gold price or futures, we have highlighted ultra-popular ETFs that are leading in terms of asset inflows this year and carry a favorable Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

SPDR Gold Trust ETF GLD: This is the largest and most popular ETF in the gold space with AUM of $36.3 billion and average daily volume of around 7.2 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%.

iShares Gold Trust IAU: 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 $10.9 billion and trades in solid volume of 10 million shares a day on average. The ETF charges 25 bps in annual fees.

ETFS Physical Swiss Gold Shares SGOL: 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 $1.1 billion in its asset base and trades in lower volume of 31,000 shares per day. The product has an expense ratio of 0.39%.

Gold Mining ETFs

Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market. Hence, mining ETFs and stocks are outperformers.

Sprott Gold Miners ETF SGDM: This fund follows the Sprott Zacks Gold Miners Index, holding 27 stocks in its basket. It is highly concentrated on the top three firms with more than 13% share each. The product is skewed toward mid caps at 52% while the rest goes to small caps with just 9% in large caps. Here again, Canada takes the top spot at 61% followed by 17% in the United Kingdom. The fund has amassed $199.5 million in its asset base and trades in a good volume of around 42,000 shares a day. It charges 57 bps in annual fees from investors and gained 8.3% so far this year.

iShares MSCI Global Gold Miners ETF RING: This ETF follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 34 securities in its portfolio. The product is heavily concentrated on the top two firms with a double-digit exposure each. Canadian firms take the half of the portfolio, while United States and Australia round out the top three with a double-digit exposure each. RING is the cheapest choice in the gold mining space, charging just 39 bps in fees and expenses. The fund has been able to manage assets worth $369.9 million and trades in a good volume of 390,000 shares per day. It is up 7.3% so far this year.

PowerShares Global Gold and Precious Metals Portfolio PSAU: This fund tracks the NASDAQ OMX Global Gold and Precious Metals Index, which measures the performance of the most liquid, globally traded companies involved in gold and other precious metals mining-related activities. Holding 62 stocks in its basket, the fund is moderately concentrated across components with each firm holding no more than 8.1% share. Here again, Canada takes the lion’s share at 51%, followed by Australia and United States. It has amassed $32.5 million in its asset base and charges 75 bps in fees per year. Volume is light at nearly 15,000 shares. The ETF has gained 6.3% in the same time period.

Gold Mining Stocks

These gold mining stocks have been performing well and are looking to post double-digit growth for this year. Additionally, these have a Zacks Rank #2 (Buy) or 3 (Hold).

Sandstorm Gold Ltd. SAND: This Zacks Rank #2 company is a gold streaming company engaged in providing upfront financing for gold mining companies. It gained 7.2% so far and is posed to generate an impressive earnings growth of 83.3% for 2018. However, SAND has an unfavorable Growth Style Score of D, and a Value and Momentum Style Score of F each.

AngloGold Ashanti Ltd. AU: This Zacks Rank #3 company is the operator of a gold mining and exploration company. The stock is up nearly 11% so far this year. The strong performance is expected to continue given that it also has enticing flavors of a Value Style Score of B, and a Growth and a Momentum Style Score of A each. Further, its earnings are expected to grow 274.1% this year.

Barrick Gold Corporation ABX: This Zacks Rank #3 company is a leading international gold producer with low-cost mines in North and South America. Its earnings are expected to grow a substantial 19.15% this year. The stock has gained 2.5% so far and has a top Value and Momentum Style Score of A each, though growth Style Score of F is dismal.

ETFS-GOLD TRUST (SGOL): ETF Research Reports

GOLD (LONDON P (GLD): ETF Research Reports

ISHARS-GOLD TR (IAU): ETF Research Reports

SPROTT-GOLD MNR (SGDM): ETF Research Reports

ISHARS-M GL GLD (RING): ETF Research Reports

PWRSH-GLBL GOLD (PSAU): ETF Research Reports

Barrick Gold Corporation (ABX): Free Stock Analysis Report

AngloGold Ashanti Limited (AU): Free Stock Analysis Report

Sandstorm Gold Ltd (SAND): Free Stock Analysis Report

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