Morningstar recently reported that investors poured $8 billion into 3 prominent Gold ETFs over the first 6 months of 2010: SPDR Gold (NYSEARCA:GLD), iShares Gold Trust (NYSEARCA:IAU) and Physical Swiss Gold (NYSEARCA:SGOL). The former has size and name recognition and the latter has the element of safe storage in Switzerland. Yet, what about the middle step-child?
Until recently, the iShares Gold Trust (IAU) had less to set itself apart in the branding department. Yet it has since stolen a page out of the Vanguard playbook, introducing an expense ratio of a mere 0.25%. GLD and SGOL trade with an annual expense ratio of 0.40% and 0.39% respectively.
Of course, the bigger question on some folks’ mind is whether the gold rush is ending. The spot price recently fell below $1200 per ounce, which had previously acted as a major level of support. This fact notwithstanding, one should consider buying Gold ETFs on the dips.
Gold has been a winner in deflation, when world currencies have faltered. Gold is a well-known adversary of inflation. And for gold to reach an inflation-adjusted high, the yellow metal would need to surpass $2000 per ounce.
On top of the crisis-hedging, you have enormous global demand by consumers in emerging nations. And then there’s the ongoing purchasing by world central banks. What’s not to like?
Note: I don’t see gold reaching a 1980s-style, inflation-adjusted, $2000-per-ounce level any time soon. Yet I do believe $1500 per ounce is a reasonable target over the next 18-24 months.
Keep in mind, when gold approached $1200 last December, it had gone up a bit too quickly and a bit too rapidly. The media were using “gold bubble” in nearly every conversation. Meanwhile, I proclaimed that I’d be a buyer at $1040-$1070. (Review my 12/3/2009 pro-gold feature: “Dealing With A Bubble-Troubled Public.”)
Corrections will occur, but at that time, there was little reason to believe that the yellow metal would fall below $1000 per ounce. And at the present time, there’s little reason to expect that it will fall below $1100 per ounce. I’d be a buyer at $1150-$1190.
Consider one more factor in your decision to get gold exposure. If companies are battling it out on television and radio to buy your gold, aren’t they likely doing it with an expectation of profit? If you want to know when the gold bull market ends, it’ll likely occur when less companies are interested in paying you for it. (Or when your neighbors start digging up their backyards rather than hosting ”gold parties” for giving it away.)
Admittedly, I’m a bit less inclined to go gaga over the gold miners. These corporations definitely have the incentive to explore for a commodity that costs about $300 per ounce to dig out of the earth. Yet changing taxes, government intervention, and radical daily price movement make it difficult for me to green-light the goldmining ETFs.
|Everything Golden in 2010?|
|SPDR Gold Trust (GLD)||9.7%|
|ETFS Physical Swiss Gold (SGOL)||9.7%|
|iShares Gold Trust (IAU)||9.7%|
|PowerShares Global Gold and Precious Metals (NASDAQ:PSAU)||5.1%|
|Market Vectors Gold Miners (NYSEARCA:GDX)||8.2%|
|Junior GoldMiners (NYSEARCA:GDXJ)||1.8%|
Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company receives advertising compensation at the ETF Expert web site from Invesco PowerShares Capital Management, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.