So-called gold exchange-traded funds (ETFs) have risen in popularity among precious metal investors over the past five years or so. These investment vehicles offer the same conveniences as trading stocks while providing exposure to the price of gold.
However, one of the main appeals of ETFs is the diversity they can offer in a single investment product, like a miniature hedge fund. Now, a new "long dollar" gold ETF known as GLDW has been introduced by the World Gold Council (WGC).
Long Dollar Gold ETF
The new ETF developed by the WGC is designed for a strong-dollar environment, which is precisely the economic climate we currently find ourselves in. Yet both the gold price and the USD have been moving higher of late: the dollar is trading above 100.0 on the DXY index, which tracks the value of the greenback against a basket of its main competitors; meanwhile, gold has risen more than 5% over the past month and precious metal ETFs (like GLD, the SPDR Gold Trust) are seeing their best inflows in five months. In fact, the uneven reception to the first few weeks of the Trump administration have prompted a rush into gold ETFs like GLD and GDX, the ETF that tracks the gold miners index.
Like its counterpart GLD, the new GLDW will be backed by physical gold in the form of London Good Delivery gold bars. These ingots meet strict requirements for purity and each weighs 400 troy ounces.
However, it's worth mentioning that the trust that administers GLD was keen to include a clause in its bylaws that frees the fund from any obligation to settle one's shares in physical metal. In virtually all circumstances, shares are redeemed for cash, not actual gold. It's not far-fetched to expect that GLDW will be no different in this regard.
This is why many investors prefer to buy physical precious metals like bars or coins. The point of a tangible asset is that it's something, well, tangible!
We may be in for a repeat performance where the precious metals start off another year strong following a winter swoon. This happened in 2016 and is shaping up similarly in 2017. We will have to wait and see if this indeed turns out to be the case.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.