Are Gold ETFs A Better Bet Than Gold Stocks?
This has been a tough week for gold stocks and the price of gold in general. After reaching new, all-time highs on August 7, the price of gold slid back below $2,000. It’s been fighting to hold that level ever since. This has brought a lot more volatility to gold stocks, in general, this week and while volatility is where profits are made, downward swings have been more frequent than the upward ones. The main culprit recently has been the U.S. dollar and bond yields.
Following a strong surge this month, the gold market is curbing those gains into the end of this week. “Many stop-loss orders are likely to be placed below it, so it will be important to maintain this support area. Otherwise the correction could drag on significantly longer,” said analysts at Commerzbank, to Kitco News.
In addition, we’ve also seen weak economic data come out of Europe as well as questionable jobs numbers in the U.S. But with the U.S. dollar strength, it’s almost a sure bet that gold would have felt the pressure. “Regardless of recent losses, the fundamentals remain in favor of higher Gold prices with a rebound potentially on the cards,” said a research analyst at FXTM.
“A broadly weaker Dollar, negative US yields, pre-election jitters and rising coronavirus cases in the United States are likely to keep gold shining in the medium to long term.”
So it may become a matter of either “stock picking” gold stocks or identifying opportunities in certain gold ETFs to weather the overall volatility. Whichever you decide, there are several choices when it comes to gold and gold bullion/ gold stock ETFs
Gold Bullion ETF: SPDR Gold Trust ETF
SPDR Gold Shares (GLD ETF Report) offers investors a relatively cost-efficient and secure way to access the gold market. SPDR Gold Shares are intended to offer investors a means of participating in the gold bullion market. But instead of buying physical gold, they can invest in GLD.
According to SPDR, the launch of the ETF was intended to “lower many of the barriers, such as access, custody, and transaction costs”. The firm saw these as hurdles preventing some investors from investing in gold.
What are investors buying with SPDR Gold Shares? It represents fractional, undivided beneficial ownership interests in the Trust, obviously. The sole assets of the trust are gold bullion, and, from time to time, cash. SPDR Gold Shares are intended to lower a large number of the barriers preventing investors from using gold as an asset allocation and trading tool. GLD gives more direct exposure to the price of gold without owning physical gold, itself.
Gold Bullion ETF: VanEck Merk Gold Trust
Another physical gold ETF is the VanEck Merk Gold Trust (OUNZ ETF Report). Similar to GLD, this Trust seeks to provide investors with a “convenient and cost-efficient way” to buy and hold gold through. It looks to address the same issue of taking physical delivery of bullion versus investing in such an ETF.
According to the Trust, its primary objective is to provide investors with an opportunity to invest in gold through the shares and be able to take delivery of physical gold bullion (physical gold) in exchange for their shares. The Trust’s secondary objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust’s operations.
Merk has developed a proprietary process for the conversion of London Bars into gold coins and bars. Another feature that the ETF promotes in tax efficiency. As it puts it, “Taking delivery of gold is not a taxable event as investors merely take possession of what they already own: the gold.”
Gold Stock ETF: VanEck Vectors Gold Miners ETF
The VanEck Vectors® Gold Miners ETF (GDX ETF Report) seeks to replicate as closely as possible, the price and yield performance of the NYSE Arca Gold Miners Index (GDMNTR). The index is intended to track the overall performance of companies involved in the gold mining industry. For inclusion, companies must derive at least 50% of total revenues from gold mining and related activities.
Top holdings in the GDX ETF include Newmont Corp. (NEM Stock Report), Barrick Gold Corp. (GOLD Stock Report), Franco-Nevada Corp (FNV Stock Report), Wheaton Precious Metals Corp. (WPM Stock Report), and Newcrest Mining Ltd. Combined, those 5 holdings, alone, comprise nearly 43% of the ETF. In total, there are 53 holdings in the fund.
Gold Stock ETF: VanEck Vectors Junior Gold Miners ETF
The VanEck Vectors® Junior Gold Miners ETF (GDXJ ETF Report) seeks to replicate the price and yield performance of the MVIS® Global Junior Gold Miners Index. The index is intended to track the overall performance of small-cap companies. Specifically, these companies are involved primarily in the mining for gold and/or silver. Companies must derive at least 50% of total revenues from gold or silver mining and related activities for inclusion.
Top holding in the GDXJ ETF includes Kinross Gold Corp (KGC Stock Report), Gold Fields Ltd. (GFI Stock Report), Pan American Silver Corp. (PAAS Stock Report), Northern Star Resources and Evolution Mining. However, unlike GDX, GDXJ’s top 5 holdings only comprise about 28% of the entire ETF. GDXJ is less weighted in a few names and more diversified among smaller stocks. In total, there are 79 holdings in the fund.
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