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IAU: The Fed Just Provided Confirmation For Gold Bulls

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Nexus Research


  • The IAU ETF is up by about 9.89% over the past few months amid an increasingly dovish Fed.
  • Fed chairman Powell has satisfied markets' need for more accommodative monetary policy guidance.
  • Weakening trends in the housing sector could undermine Fed's willingness to turn hawkish for the foreseeable future.

Following mostly sideways performance for about a month, the shares Gold Trust (NYSEARCA:IAU) ETF is up 11.09% since Dec. 24, 2018. The performance of gold is strongly inversely correlated to movements in the US dollar, because the metal is a dollar-denominated commodity. The stronger the USD becomes, the more expensive it becomes to buy gold. The dollar has been softening lately, which in turn benefits demand for gold and consequently the IAU ETF. The chart below demonstrates the inverse correlation between the US Dollar Index (green line) and IAU ETF (blue line). The latest statements from the Fed could support gold prices and the ETF higher.

Source: Yahoo Finance

Prospectus Review:

The IAU ETF tracks the price of gold by using the ‘LBMA Gold Price’ as its underlying benchmark. The fund offers this exposure by holding physical gold in its portfolio. It seeks to offer a more convenient mechanism to invest in gold, as an alternative to having to transport and store physical gold.

Risk note from prospectus:

Because the Trust does not have any income, it needs to sell gold to cover the Sponsor’s Fee and expenses not assumed by the Sponsor. The Trust may also be subject to other liabilities (for example, as a result of litigation) that have also not been assumed by the Sponsor. The only source of funds to cover those liabilities will be sales of gold held by the Trust. Even if there are no expenses other than those assumed by the Sponsor, and there are no other liabilities of the Trust, the Trustee will still need to sell gold to pay the Sponsor’s Fee. The result of these sales is a decrease in the amount of gold represented by each Share.

The reason I have chosen this ETF is because it offers a

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Striving to uncover long-term investment opportunities (10+ years) through in-depth research and analysis. Nexus Research seeks to evaluate and compare business strategies to determine a company’s potential for market penetration, revenue growth and profit margin expansion. During market downturns, stocks often become cheap very fast, creating various investment opportunities at once. Amid such circumstances, investors often lack the time to research a company thoroughly before making investment decisions, out of fear that they will miss out on attractive entry points. Therefore, Nexus Research not only uncovers present-day buying opportunities, but also offers extensive insights on solid companies with promising growth potential despite expensive valuations, thereby allowing investors to be ready and make well-informed investment decisions when the stock becomes more reasonably valued.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in IAU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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