Gold has seen a robust rally this year following the coronavirus outbreak. The yellow metal soared to an all-time high of $2,000 per ounce, representing a year-to-date gain of about 28% with many analysts expecting further rally ahead (read: Why Gold ETFs are Soaring This Year).
The most recent rally was brought in by investors’ flight to safety amid a resurgence in coronavirus cases, which has raised questions on economic recovery. Lower interest rates, a weaker dollar, rising tension between the United States and China, and presidential election are driving gold price higher.
The Bloomberg Dollar Spot Index is poised for its worst July in decades, having lost 3.9% so far this month. The index is trading at the lowest since 2018. Meanwhile, the relationship between the world’s two superpowers worsened when China ordered the closure of the U.S. consulates in Chengdu in retaliation for America shuttering Beijing’s diplomatic mission in Houston last week.
Additionally, much of the momentum is fueled by rising inflationary expectations as massive liquidity injections by central banks across the globe have raised the appeal of gold as a hedge against inflation. A spike in U.S. jobless claims last week for the first time in four months as well as growing expectations that the Federal Reserve will slash policy rates further in its FOMC meeting this week also lent support to gold price.
In such a bullish scenario, fund flows into the gold-backed ETFs topped the record set in 2009 (read: Gold ETFs See Record Inflows In 1H20 Amid Coronavirus Crisis).
How to Tap
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 ETFs that have hit new highs in the recent session and carry a favorable Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
GraniteShares Gold Trust BAR: With AUM of $1.2 billion and expense ratio of 0.17% tracks the performance of gold price. It trades in a moderate volume of 379,000 shares per day on average.
SPDR Gold MiniShares Trust GLDM: This product seeks to reflect the performance of the price of gold bullion. Being a low-cost product with expense ratio of just 0.18%, GLDM has amassed $3 billion in AUM and trades in a solid average daily volume of 2.1 million shares.
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 $29.5 billion and trades in solid volume of 21.6 million shares a day on average. The ETF charges 25 bps in annual fees (read: Here’s Why You Should Invest in Gold ETFs Now).
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. We have highlighted the ones that are leading this year:
iShares MSCI Global Gold Miners ETF RING: This ETF follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 37 securities in its portfolio. Canadian firms take half of the portfolio, while the United States and South Africa round off the next two spots. 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 $530.3 million and trades in a good volume of 252,000 shares per day (see: all the Precious Metal ETFs here).
VanEck Vectors Gold Miners ETF GDX: This is the most-popular and actively traded gold miner ETF with AUM of $18.1 billion and average daily volume of around 30.3 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 54 stocks in its basket. Canadian firms account for 44.4% of the portfolio, while the United States (18.2%) and Australia (14.7%) round off the next two spots. The fund charges 52 bps in annual fees.
Sprott Gold Miners ETF SGDM: This fund follows the Solactive Gold Miners Custom Factors Index, holding 29 stocks in its basket. Here again, Canada takes the top spot at 67% followed by 25.1% in the United States and 6.3% in the South Africa. The fund has amassed $291.4 million in its asset base and trades in a lower volume of around 77,000 shares a day. It charges 50 bps in annual fees from investors.
Gold Mining Stocks
These gold mining stocks have been performing well and are poised to post double-digit growth for this year. Additionally, these have a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gold Fields Limited GFI: This Zacks Rank #2 company is one of the world’s largest unhedged gold producers with operating mines in South Africa, Ghana and Australia. Its earnings are expected to grow a 35.7% for this year. The stock has gained 89% so far and has a top VGM Score of A.
Kinross Gold Corporation KGC: This Zacks Rank #2 company is primarily involved in the exploration and operation of gold mines. It has gained 77.6% so far this year and is posed to log impressive earnings growth of 85.3% for this year. The stock has a VGM Score of A.
Equinox Gold Corp. EQX: This Zacks Rank #2 company is engaged in the acquisition, exploration and development of mineral deposit. The stock is up nearly 49.5% so far this year. The strong performance is expected to continue given that it has a VGM Score of B and its earnings are expected to grow 255.2% this year.
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