For Immediate Release
Chicago, IL – March 28, 2012 – Today, Zacks Investment Ideas
feature highlights Features: SPDR Gold Trust
( GLD). iShares Gold
Trust ( IAU) and ETFS
Physical Swiss Gold Shares ( SGOL).
Why Gold ETFs May Still Shine
This morning, the gold prices rose about 1.5% after comments
from the Federal Reserve Chairman that faster growth will be needed
to boost employment, "a process that can be supported by continued
accommodative policies”. The comments were interpreted by the
market as “further quantitative easing measures may be necessary to
boost the economy”.
Gold had started the year on an excellent note, rising more than
12% during the first two months of the year, due to heighted
macroeconomic uncertainties and continued money printing in many
countries. Gold acts as an inflation hedge and store of value.
However as the economic recovery in the U.S. appeared to be gaining
traction and European debt situation appeared to be under control,
the hopes for further stimulus faded. As a result, Gold and other
precious metals came under pressure in the last few weeks. Gold
also lagged behind the other two precious metals Platinum and
Silver, both of which have recorded double digit gains
year-to-date.
Gold has lost about 8% this month, down from $1788 at the end of
February 2012 to $1651 as of March 23, 2012, but it is still up
about 5% for the year. Apart from the renewed optimism about the US
recovery and fading concerns about Europe; decline in demand from
China and India also weighed on the Gold prices. China and India
are the two main consumers of gold generating 55% of global jewelry
demand and 49% of total global demand for gold.
Gold demand in India is expected to come down this year as the
Government recently doubled the import duty on the metal from 2% to
4% and also imposed a levy on unbranded jewelry, as measures to cut
the country’s current account deficit. Concerns about the slowdown
in China have already been affecting the prices.
Despite these concerns, the long term outlook for the gold
remains positive. Continued loose monetary policies by the central
banks have led to rise in inflationary expectations in many
countries. The real interest rates are already negative in many
parts of the world. Though inflation does not appear to be a
pressing concern in the U.S. as of now, the situation may change if
the oil prices continue to rise. Rising oil prices may also hurt
economic recovery as they affect the business and consumer
spending.
Over the longer-term, the demand from India and China is
expected to grow as the middle class in these countries prefer gold
as a store of value. Expanding middle class in these countries and
their growing spending power will continue to generate a
significant proportion of gold’s worldwide consumer demand.
The global financial system still remains fragile and the
sovereign debt problems in Europe are far from resolved. Any
escalation of the European debt crisis or political risks resulting
from the tensions in the Middle East could push gold higher.
Also, though gold prices have been going up in the past decade,
global mine production has not increased much during the same
period and is also likely to stay stagnant in the coming years.
Further, purchases by central banks, in particular from the
emerging countries, have soared in recent years and this trend is
expected to continue. According to World Gold
Council, central banks continued the trend established in 2010
of being net buyers of gold in 2011 also. There are growing
concerns about the credit quality of sovereign debt, which
increases the appeal of gold for the official reserves
managers.
Apart from the attractive return potential, gold is a valuable
asset due to its diversification potential. Diversified
portfolios result in superior risk-adjusted returns over long-term
periods.
Buying physical metal provides direct exposure to the asset
class but comes with its own problems, while the gold ETFs provide
a cost efficient and secure way to invest. Gold ETFs are also
preferred by the investors over the gold mining stocks, which may
be subject to geopolitical risk, rising costs, labor problems or
mining accidents.
We prefer the physically backed ETFs over the ones which use
futures to provide exposure to the commodity.
SPDR Gold Trust ( GLD)
GLD is the largest, most liquid and widely traded gold ETF. It
seeks to replicate the performance of the gold bullion net of
expenses and each share represents 1/10th of an ounce of gold. The
fund is backed by physical holding of gold bullion in London
vaults. Gold is sold on an as-needed basis to pay the Trust's
expenses and as a result, the amount of gold represented by each
share will be reduced over time. This ETF has an expense ratio of
0.40% per year and has returned 6.28% year-to-date.
iShares Gold Trust ( IAU)
IAU presents a much cheaper option to GLD with its expense ratio at
0.25% per year. Each share of IAU represents about 1/100th of an
ounce of bullion. The shares are backed by gold, held by the
custodian in vaults in the vicinity of New York, Toronto, London
and other locations. The fund has returned 6.37% year-to-date.
Though more expensive, GLD has ten times the assets invested and is
thus much more liquid than IAU, resulting in slightly lower bid-ask
spreads.
ETFS Physical Swiss Gold Shares (
SGOL)
SGOL is a relatively new product in this space, started in
September 2009. Its main selling point is that its gold bullion is
held in the vaults of Zurich, Switzerland. Like GLD, each share of
SGOL represents 1/10th of an ounce of gold. But compared to GLD and
even IAU, it is much less liquid, which may be reflected in high
bid-ask ratio. With an expense ratio of 0.39% per year, SGOL does
not offer any cost advantage also. So, unless you are worried about
any risk to the safely of gold held in New York or London vaults,
there is no reason to prefer SGOL over the other two. This ETF has
returned 6.25%, which is in-line with the performance of GLD and
IAU.
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Grafico Azioni Abrdn Physical Gold Shar... (AMEX:SGOL)
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