Gold Purchases and Gold ETFs

Guest Post from James Kelley

New Gold ETF Launched Amidst Strong Dollar

Investors typically trade gold when the dollar is weak. Historically speaking, gold is a good hedge against weak currency. Precious metals firm State Street Global Advisors and the World Gold Council recently launched a brand new gold ETF to tackle market friction points.

Strong Dollar, but…

The newly unveiled SPDR Long Dollar Gold Trust ETF generates gains when the value of the dollar increases, or when the gold valued in U.S. dollars increases. The value of the ETF is based on shorting major currencies like the Sterling Pound, Euro, Japanese Yen, Swedish Krona, Swiss franc and the Canadian dollar. Almost all these currencies, with the notable exception of the British pound, are doing expectedly well.

The ETF charges participants 0.5 percent, or 50 basis points. In comparison, largest U.S. gold ETF, the SPDR Gold Trust, only requires 40 basis points. iShares Gold Trust on the other hand charges only 25. The SPDR Long Dollar Gold Trust actually has a lower expense ratio of 0.25 percent so it’s easier for investors to comprehend.

The backers of the ETF are trying to promote the advantages of owning gold in an ETF when the dollar is actually performing in a strong environment. In this scenario, ETF investors lose money when the value of the dollar rises and the price of gold in comparison falls below.

The U.S. dollar has made a remarkable comeback following the 2008 recession. So not everyone is a fan of the new ETF. Some are warning that investors who seek to capitalize on the position of gold against a valuable dollar are losing out on the advantages posed by a strong dollar.

Rising Gold Prices

Despite what the markets indicated early this year, gold prices have been inching gently higher in recent months. This is largely thanks to market, trade and political uncertainly brought forth by a Trump administration. By the end of the month, gold prices per ounce in January 2017 had consolidated at $1,200.

Though the dollar is not weak, uncertainty is driving many investors to stock up on gold and put their fortunes in gold ETFs. While many businesses looked forward to higher profits thanks to deregulation the Trump administration supports, many are worried about Trump’s trade talk. One of the earliest actions taken by Trump was to withdraw U.S. from TPP talks. Then, as he has done during the campaign, Trump took aim at NAFTA. His rhetoric is also threatening to blow up the U.S. and China relationship.

These recent developments are feeding into market uncertainty. This is the sort of environment gold prices usually thrive on. No one can really say how the dollar will look at the end of this year, or by the end of a Trump administration. Therefore, the desire to buy gold among investors is high.

Purchasing Gold as Consumers

Many professional gold dealers and firms like Lear Capital are pushing for regular consumers to buy gold as well. Regular consumers in Europe, for example, bought gold in almost a frenzy following the Brexit vote. Britons with retirement funds who are losing to a slumping pound were prominent gold buyers. Some gold merchants are hoping a similar trend would take shape in the U.S.

It’s too early to say whether investments like the SPDR Long Dollar Gold Trust will be successful. If the dollar continuous to be strong despite changing political winds, the ETF most likely will be.

Guest Post from James Kelley

Thanks to James Kelley

 

Gary Christenson

The Deviant Investor

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