Gold investment and a rising dollar stopped going hand in hand since the gold standard ended in 1971, as per the source. In a rising greenback environment, what we are witnessing right now thanks to Fed policy tightening, U.S. Treasury bond yield are on the uptrend.
Also, increased inflationary expectations following Trump's pledges for fiscal reflation lately gave a solid boost to U.S. Treasury bond yields which in turn punished non-interest bearing assets like gold. The metal lost almost 13% in Q4.
With such a gold-unfriendly environment expected to stay on an overall basis, barring some occasional safe haven rally, State Street Global Advisors launched a new gold ETF, namely SPDR Long Dollar Gold Trust (NYSE:GLDW), that outweighs the dollar headwind. Let's delve a little deeper.
The fund looks to track the performance of the Solactive GLD Long USD Gold Index. The Index combines a long position in physical gold and a long dollar exposure against a basket of non-U.S. currencies consisting of the euro (EUR), the Japanese yen (JPY), the British pound (GBP), the Canadian dollar (CAD), the Swedish krona (SEK) and the Swiss franc (CHF).
The fund, which holds physical gold, charges 50 bps in fees. However, there is a risk. The new ETF will dive when gold prices plunge more than the value of the dollar rise.
How Might It Fit in a Portfolio?
The fund is a great tool for investors who fear a rising greenback before investing in gold. Investors should note that the U.S. dollar will likely remain on the upside with a moderately hawkish Fed and Trump as the president. On the other hand, yen and several European currencies are losing strength on a loose monetary policy. The British pound also lost its luster since the Brexit decision.
This is why the new fund takes long positions in gold and the U.S. dollar against some otherwise losing non-U.S. currencies. Investors should also note that gold is a safe-haven currency and the greenback at times acts like a safe asset and outperforms amid market gyrations. In such a situation, the new fund may prove beneficial.
Notably, gold acts as an inflation-hedge. The inflationary outlook is finally looking up in developed economies, albeit slowly. In such a scenario, procuring gold and at the same time overruling the negative impact of the greenback should be a great idea.
Though the gold ETF investing space is crowded with products, the newly launched ETF should not face meaningful competition in amassing assets thanks to its unique investment strategy, which could set the new entrant apart from the entire lot.
Examples of some other currency-linked gold ETFs are AdvisorShares Gartman Gold/Yen ETF (NYSEARCA:GYEN) and AdvisorShares Gartman Gold/Euro ETF (NYSEARCA:GEUR). These funds offer positive returns by using the Japanese yen or euro to invest its assets in the gold market. This method actually allows investors to invest in gold by financing gold purchases in liquid currencies other than the greenback.